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AGENCY

Loon Karan Sohan Lal vs Firm John And Co.


FACTS:
Plaintiff-appellant contracted with John and Co. (henceforth called J&C) for sale and
delivery of goods. Plaint was buyer and J&C was seller. Sethiya & Co (S&C) were agents
of J&C. App contended that
1. S&C should be liable for non delivery of 152 bales of yarn to def.
2. Refund of price
No contract between S&C and app. Contract was betweem app. And John & Co. (J&C). S&C
were agents of J&C, and did not have privity in contract between J&C and app. Hence, S&C
cannot be sued.
Plaint claimed he was agent of govt. And under 222 and 223 of Contract Act, he has right to be
reimbursed. Documents also show that govt. Has referred to plaint. As "agent". However, agency
is established by nature of relationship, not only wording of agreement. Crucial point is that an
agents acts must bind the principal.
Agency was primarily present to represent principal in actions with third parties. Nothing to
show that agency was created between govt. And plaint. Third part didn't even exist at the time
of the agreement between govt and plaint.
Reasons why he wasn't an agent: He entered into the agreement of sale of yarn with John and Co.
in his own name and on his own behalf; he paid the price from his own pocket and did not debit
it to the Assam Government; he regarded himself as the owner of the goods and filed this suit in
his own name. Also, in contract bet. Plaint and J&C, plaint was buyer and not govt. Plaint sued
S&C for conversion-it shows that plaint thought he was owner of goods as only owner can sue
for conversion. Plaint was only a licensee licensed to sell by the govt
Plaint argued that he was employed by govt to purchase yarn- therefore he is an agent. This is
wrong- there is a difference between a person employed In do an act for another and a person
who does an act at the bidding if another. In the first case, the act is of the person employing,
there is agency under 182 and employer must indemnify under 222. In the latter, the act is
of the person being employed, no agency and no indemnification unless specific indemnity
contract exists. Plaint only employed to sell yarn (licensee) and hence no agency.
Held in favour of def.

Seth Loon Karan Sethiya vs Ivan E. John And Ors.

The bank is the creditor and the appellant is the debtor. The bank filed an application for
execution of the decree . The manager of the bank singed the decree. The appellant objected
saying that the power of attorney is obtained by misconception. Since it is a decree only the
decree holder can execute the decree.
The SC had to decide whether the appellant can revoke the power of attorney. As sec 202 says,
when the agent has an intrest that agency is an irrevocable agency. The intrest of the bank is the
decree.
An agency of the kind described in the section cannot be revoked by the principal, nor is it
terminated by the death, unsoundness of mind or insolvency of the principal. [Seth Loon Karan
Sethiya v Ivan E John]. It may, however, be revoked by the principal for the agent's misconduct
in the performance of duties.

47. Lakshminarayan Ram Gopal and son v Government of Hydrebad

FACTS:
-

The appellant entered into an agreement with the Mills Company owned by the
Government whereby the app was appointed as an agent of the company for a period of
30 years.
The agreement contained a clause which stated that the agents could act subject to the
direction and supervision of the Directors of the company, manage the daily affairs of the
company. They were given the power to enter into contracts on behalf of the company.
They also could appoint and suspend such managers as were necessary and decide their
remuneration and duration of employment. They were also given the power to subdelegate.
Taxes were levied on the remuneration received by the app from the company. The apps
contend that the remuneration is not taxable since it was not income, profits or gains from
business and thus was outside the purview of taxable remuneration.

ISSUE:

1. Whether the appellants are servants or agents of the company?


2. Whether the activities carries out by the appellant constitute business? In that case the
remuneration earned by the app would amount to income profit and gain from business,
thus making it liable for tax.
HOLDING:
Issue 1:
-

In order to determine the first issue, the court lays down the difference between a servant
and agent.
1. A servant is told by the master not only what work to do, but also how to do his work.
An agent on the other hand is just given direction regarding the nature of work, the
manner of doing it is his discretion.
2. A servant does not have the authority to enter into contracts on behalf of the principal.
The agent has the authority to do so.
3. The remuneration received by the servant is in the nature of wages while the agent
receives commission
The court also lays down the concept of an independent contractor. An independent
contractor is entirely independent of any order or control. He merely undertakes to
produce a specified result and employs his own means to do so. (not necessary for
deciding the case)
The court comes to the conclusion that on the basis of the nature of work done by the
appellants, they are agents of the company. They are given general instructions regarding
management. However, the directors do not lay down how the work is to be done.
Issue 2:
The court defines business as embodied under Section 2 of the Excess Profits Tax
Regulation. There business is defined as any trade, commerce, manufacture or any
adventure in the nature of trade commerce and manufacture.
The objects of the appellant in this case are to act as an agent for government or
authorities and carry on all kinds of agency business. The words carry out agency
business occurring at the end of the object set out within their general description of work
demonstrates this point. Also, the judges stated that the continuity of operations carried
on by the appellant in the general management of the company made the activities of the
appellant a business. Also, the appellants could, with the sanction and ratification of the
Board of Directors of the company, enter into dealings with the company for the sale and
purchase of commodities. There was also nothing in the Agency agreement which
prevented the appellant from acting as the agent of other concerns besides the company.
All these factors taken, into consideration alongwith the fixity of tenure, the nature of
remuneration and the assignability of their rights, are sufficient to enable us to 'come to
the conclusion that the activities of the appellants as the agents of the Company
constituted a business and the remuneration which the appellants received from the

Company under the terms of the Agency Agreement was income, profits or gain from
business.

1) KUCHWAR LIME & STONE CO. VS. DEHRI ROHTAS LIGHT RAILWAY CO.
LTD. & ANR.
FACTS
A quantity of coal was booked by a Colliery to the appellant Company carriage to Banjari station
on the respondent Railway's line and the freight on the consignment was to be paid by the
appellant Company. The Company declined to take delivery of a part of the consignment which
reached Banjari on November 12, 1954 on account of inferior quality of the coal. After some
correspondence between the parties as well as with the Coal Controller, the Railway sold the coal
by public auction on June 2, 1955, after serving a notice on the appellant. It thereafter filed a suit
against the Company claiming outstanding amount of freight and demurrage charges for 202
days during which six wagons in which the coal was loaded were detained and 'sought a decree
for Rs. 17,625/14/- after giving credit for the amount realized from the sale of the coal.
ISSUES
(i)

Whether consignee liable to pay after refusing to accept consignment?

(ii)

If railway entitled to demurrage for full period or obliged to unload and claim demurrage
only for reasonable period?

JUDGEMENT
TRIAL COURT
The trial court granted a decree for about Rs. 1,620/- with interest, but in appeal the High Court
decreed the Railway's claim in full.
HIGH COURT
The High Court modified the decree passed by the Trial Court and decreed the claim of the
Railway against the Company in full.

SUPREME COURT
CONTENTIONS
COMPANY
(i)

The Company being a consignee of the goods booked by the Colliery there was no
privity of contract between the Company and the Railway and no claim for
demurrage or freight lay at the instance of the Railway against the Company;

(ii)

In any event the Railway ought to be awarded demurrage for only 22 days out of the
total period for which the wagons were detained.

(iii)

It is only in those cases where delivery of goods is taken by the consignee that the
liability to pay demurrage may be imposed upon him.

J.C. SHAH, J.
1. It is clear that the Colliery supplied coal in pursuance of the "sanction
order" in favour of the Company and arranged to transport it in wagons
which were allotted for that purpose by order of the Deputy Coal
Commissioner. Under the forwarding notes the freight was made
payable by the Company.
In these circumstances, it would be reasonable to infer that the Colliery
was acting as an agent of the Company in entering into the contract of
consignment and the liability for payment of freight and of demurrage
charges for failure to take delivery of the goods lay upon the Company.
2. The High Court erred in holding that the Company was liable to pay demurrage for the
full period of 202 days. Railway was entitled to demurrage for the detention of wagons
for only one month and cannot claim the entire amount. The Railway was in the position
of a bailee qua the Company and was bound to minimize the loss. It could have sold off
the coal under s, 56 of the Railways Act. Even assuming that in view of the Colliery
Control Order, the Railway could not sell the coal without the Coal Commissioner's
sanction, it could have unloaded the coal from the wagons and put the wagons to use.
Hence, the consignee could be liable only for wharfage.
3. (w.r.t 3rd contention of the company) There was no force in the contention that it is only in
those cases where delivery of goods is taken by the consignee that the liability to pay
demurrage may be imposed upon him. Even where the consignee does not ultimately take

delivery, if the wagon is detained for his benefit, normally the Railway would be entitled
to hold him liable for demurrage.

Kuchwar Lime and Stone Company v Messrs Dehri Rohtas Light Railway
Company Limited and Another

Why is the agency being disputed here ?

The company is disputing the fact that colliery is their agent because of they wanted to
escape the liability of those demurrage charges. Demurrage charge are the charge you
will incur when a vehicle is lying because of stored goods. Wharfage in warehouse.

What basis did the trial court, high court and the supreme court unanimously
Held that the colliery is the agent ?
When do u become the owner? Appropriation of goods.
The colliery is the seller and the company becomes the owner of the coal when the
specific quantity is separated from the bulk under the commissioner's order. The
wagon's were allotted in the name of the company. The freight was made payable by the
company. The order was issued in the name of the company. The order number has to

correspond with the commissioner's order . Hence the colliery was just an agent of the
company.
Mere mentioning of the word doesnot make any difference.
What is the status of the railways when they have the possession of the goods ?
The railways is the bailee because they have the possess ion of the coal. Company is the
bailor. Here the bailor is refusing to take the goods . The bailee can sue for damages. The
railways while suing for damages they have to mitigate the damages. The court says that
the coal should have been unloaded and the stored.

Kuchwar Lime & Stone Co. v. Dehri Rohtas Light Railway Co. Ltd. & Anr.
Facts
A quantity of coal was booked by a Colliery to the appellant Company carriage to Banjari station
on the respondent Railways line and the freight on the consignment was to be paid by the
appellant Company. The Company declined to take delivery of a part of the consignment which
reached Banjari on November 12, 1954 on account of inferior quality of the coal. After some
correspondence between the parties as well as with the Coal Controller, the Railway sold the coal
by public auction on June 2, 1955, after serving a notice on the appellant. It thereafter filed a suit
against the Company claiming outstanding amount of freight and demurrage charges for 202
days during which six wagons in which the coal was loaded were detained and sought a decree
for Rs. 17,625/14/- after giving credit for the amount realized from the sale of the coal.
Issues
(i) Whether consignee liable to pay after refusing to accept consignment?
(ii) If railway entitled to demurrage for full period or obliged to unload and claim demurrage
only for reasonable period?
Judgement
Trial court: The trial court granted a decree for about Rs. 1,620/- with interest, but in appeal the
High Court decreed the Railways claim in full.
High Court: The High Court modified the decree passed by the Trial Court and decreed the claim
of the Railway against the Company in full.
Supreme Court
Contentions
Company
(i) The Company being a consignee of the goods booked by the Colliery there was no privity of
contractbetween the Company and the Railway and no claim for demurrage or freight lay at
the instance of the Railway against the Company;

(ii) In any event the Railway ought to be awarded demurrage for only 22 days out of the total
period for which the wagons were detained.
(iii) It is only in those cases where delivery of goods is taken by the consignee that the liability to
pay demurrage may be imposed upon him.
J.C. Shah, J.
It is clear that the Colliery supplied coal in pursuance of the sanction order in favour of the
Company and arranged to transport it in wagons which were allotted for that purpose by order of
the Deputy Coal Commissioner. Under the forwarding notes the freight was made payable by the
Company. In these circumstances, it would be reasonable to infer that the Colliery was acting as
an agent of the Company in entering into the contract of consignment and the liability for
payment of freight and of demurrage charges for failure to take delivery of the goods lay upon
the Company.
The High Court erred in holding that the Company was liable to pay demurrage for the full
period of 202 days. Railway was entitled to demurrage for the detention of wagons for only one
month and cannot claim the entire amount. The Railway was in the position of a bailee qua the
Company and was bound to minimize the loss. It could have sold off the coal under s, 56 of the
Railways Act. Even assuming that in view of the Colliery Control Order, the Railway could not
sell the coal without the Coal Commissioners sanction, it could have unloaded the coal from the
wagons and put the wagons to use. Hence, the consignee could be liable only for wharfage.
(w.r.t 3rd contention of the company) There was no force in the contention that it is only in those
cases where delivery of goods is taken by the consignee that the liability to pay demurrage may
be imposed upon him. Even where the consignee does not ultimately take delivery, if the wagon
is detained for his benefit, normally the Railway would be entitled to hold him liable for
demurrage.

. Kuchwar Lime and Stone Company v M/S Delhi Rohtas Light Railway Co Ltd.
FACTS:
-

A sanction was issued by the Coal Commissioner in favour of the Kuchwar Company
whereby the company would get coal which was arranges by a colliery. The colliery
would also load the coal onto the wagons. The coal was to be transported via the
respondent railway.
The company received the first few consignments of coal, after which it refused to take
delivery of the consignments, complaining of poor quality of coal.

The consignments were retained in the station for a period of 200 days for which the
respondent railway claimed demurrage charges.

CONTENTION OF THE COMPANY:


1. There is no privity of contract between the company and the railway. Thus the company
is not liable to pay demurrage.
2. The company would be liable to pay demurrage only if it had taken delivery of the coal.
Since the company did not take delivery of the coal, it need not pay demurrage.
3. Even if the company was to pay demurrage, it is not liable to pay demurrage for a period
of 200 days.
ISSUES:
1. Is the company liable to the railways?
HOLDING:
The court rejects the various contentions of the appellant company on the following
grounds.
1. The court states that according to the circumstances of the case, the colliery was
acting as an agent of the company. It did not matter that there was no contract of
agency between the company and the colliery. Agency does not require an agreement.
The authority of the agent can be inferred from the circumstances of the case. Here
the authority can be inferred from the sanction which is provided by the coal officer.
Since the colliery is an agent, the act of the agent binds the principal company. Thus,
the company is liable to pay demurrage.
2. The court states that the company would have to pay demurrage even if the company
did not take delivery of the consignments as the coal was retained for the benefit of
the company.
3. The company informed the railway after the arrival of the consignments that they
would not take delivery of them due to their poor quality. The railways were under a
duty as a bailee to retain the coal in the wagons only for a reasonable time and then
proceed to sell it. 200 days is not a reasonable time. Thus the railways have breached
their duty as a bailee for the same. The court holds that the company is not liable to
pay demurrage charges for the entire period of 200 days but only for a reasonable
period of a month.
Mohd. Moinuddin v Mir Ahmed Ali
FACTS:
Plaintiff and defendant are co-brothers. Plaintiff agrees to represent the defendant in two suits.
He then sues the defendant for his remuneration, which is essentially his consideration.

CONTENTION OF THE DEFENDANT:


-

The defendant invokes section 25(2) of the Indian Contract Act, which provides that
consideration is not necessary in case the agreement is formed out of natural love and
affection.
The defendant also invokes Section 185 of the Act, which states that a contract of agency
does not require consideration. The plaintiff is the agent of the defendant and represented
the defendant in court. This contract does not require consideration.

HOLDING:
-

The court rejects the contention on the basis of section 25(2) as in this case, the contract
has to be in writing and it has to be registered. In this case, these conditions have not been
satisfied.
The court also states that though under section 185, agency does not require
consideration, that does not bar the plaintiff from suing the defendant for the amount he
owes him.
Harshad J. Shah and Another v L.I.C. of India and Others

Insurable intrest is the intrest for which you take the insurance . This makes it different form the
wagering contract.
The insurer had deceased. This was a half yearly payment. If you don't pay within the grace
period then the policy lapses. To revive the policy the insurable intrest must be alive. Payment of
the policy is delayed. The premium was paid to the agents. The payment was paid in the bearer
cheque. The agent also defaults. His son goes and encashes . The money is deposited on august
10th one day after the death of the insurable intrest. Thus the policy lapses. Hence the appellant
to prove agency. The payment to the agent was the payment to the company . LIC argues that he
was not their agent when the money was taken.
Actual authority and apparent authority. Actual authority is of two types expressed or
implied. implied authority is of three types incidental or necessary, customary and
circumstantial.
According to sec 237, there should be agency but the scope of authority is in question. The
principle of estoppel is incorporated in the section.

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LIC says that they did not have any actual authority according to the regulations. Implied
authority is ruled out because it was not incidental or necessary to conduct the business of
agency.

Apparent authority was not entertained because he did not argue in front of the state commission.
There was no statistics, data showing the inducement from the part of LIC. You have to show
representation, there representation was to be believed and the reliance on the representation.
This authority is there to protect the innocent third party. This is on the lines of estoppel of
representation.

HARSHAD J SHAH

LIC

FACTS
A bearer-cheque, with the name of agent on it, towards the payment of
premium was handed over to a general agent (R3) of the LIC (R1). (This
payment was being made after the lapse of the grace period). The agent
encashed the cheque and deposited it with the LIC. However, the insured
meanwhile met an accident and died (Aug 9) the day before actual
deposition took place (Aug 10). The widow of the insured (A2), (as the
nominee under the policies), submitted a claim to the LIC in Gujarat State
Consumer Disputes Redressal Commission. LIC refused to pay claiming a
default in payment of premium.

ISSUES
(i) Whether payment of premium by the insured to the general agent of
the LIC can be regarded as payment to the insurer so as to constitute a
discharge of liability of the insured?
(ii) (Salve) Whether the LIC can be held liable on the basis of the doctrine
of apparent authority?

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JUDGMENT

STATE COMMISSION
Commission1)

(Maharashtra

State

Consumer

Disputes

Redressal

CONTENTIONS
APPELLANT
1. The amount of premium collected by R3 from the insured was collected
by him on behalf of the LIC.
LIC
1. The amount of premium collected by the General Agent cannot be said
to have been received by the LIC as it was stated that the agents are
not authorized to collect the premium amount.
HOLDING
In order to collect more business the agents of the LIC collect the premiums
from the policyholders either in cash or by cheque and then deposit the
money so collected in the office of the LIC and that this practice had been
going on directly within the knowledge of the LIC administration despite the
departmental instructions that the agents are not authorized to collect the
premiums. It implies that LIC was negligent in its service towards the
policyholder and was hence liable.
Appeals were filed against the said judgment of the state commission
by the appellants (not satisfied with the damage awarded) as well as
by respondents(1&2).
NATIONAL COMMISSION
Commission)

(The

National

Consumer

Disputes

Redressal

1. It dismissed the appeals filed by the appellants and allowed the appeal
filed by R1&2.
2. It held that the R3 w.r.t his act was not acting as the Agent of the LIC
nor could it be deemed that the LIC had received the premium on the
date the bearer cheque was received by R3.
Appellants filed appeals in the SC.
1 Complaint transferred from Gujrat to Maharashtra.

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SUPREME COURT
CONTENTIONS
APPELLANTS (Naresh S. Mathur )
1. Since the payment had already been made to R3, the policies did not
lapse on account of non-payment of the premium and that in any event
that said policies could be revived on payment of the interest payable
for the delayed payment of the premium amount.
2. Since the agents receive commission on the amount of premium, the
said act of R3 was within the scope of their authority and the limitation
imposed (by reguln and appointmt letter) cannot be binding as
against third parties viz., the policyholders.
3. Since, LIC by its conduct induced the policyholders to believe in the
authority of the agent w.r.t the said act; LIC was liable under S.237 2 of
the ICA.
4. Since LIC is 'state' under Article 12 of the Constitution it has a duty to
act fairly in view of the mandate contained in Article 14 of the
Constitution. ( LIC of India and Anr. v. Consumer Education & Research
center and Ors.)
RESPONDENT (Harish Salve)
1. R3 had not been empowered by LIC Regulations and his appointment
letter to receive payment from the insured.
2. The grace period had already expired (on April 6) without due payment
and the policies had lapsed. The revival of the policies was subject to
LICs discretion and could arise only if the premium can be said to have
been paid to the LIC during the life time of the insured (before August
9).
3. The agent had neither express (letter of appointment) nor implied
authority (regulation 8(4)), which shows that collection of premium was
neither necessary nor incidental. The issuance of the receipt for the
said amount by LIC in the name of the insured does not indicate that
2 makes principal, inducing belief that agents unauthorized acts were authorized, liable.

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the amount was received through R3 and that on the basis of the said
receipt it cannot be said that the LIC had induced the insured.

S.C. AGRAWAL

AND

G.B. PATTANAIK, JJ

(Judges found considerable merit in Salves submission.)


1. (w.r.t 3rd contention of the Appellants) LIC did not do any sort of
inducement. Doctrine of apparent authority underlying S. 237 cant be
invoked especially when the LIC has been careful in making an express
provision in the Regulations/Rules, which are statutory in nature.
2. (w.r.t 4th contention of the appellants) This constitutional obligation has
no bearing on the present case. In disclaiming its liability the LIC was
acting in accordance with the Regulations/Rules. The said provision has
been made in public interest in order to protect the Corp. from any
fraud on the part of an agent and LIC was acting quite fairly.

LAW POINTS

ACTUAL

AUTHORITY

Actual authority results from a manifestation of consent that he should


represent or act for the principal made by the principal to the agent himself.
It may be express or implied.

IMPLIED

AUTHORITY

Implied authority may arise in the form of incidental authority, i.e., authority
to do whatever is necessarily or normally incidental to the activity expressly
authorised, or usual authority, i.e., authority to do whatever an agent of the
type concerned would usually have authority to do, or customary authority,
i.e., authority to act in accordance with such applicable business customs as
are reasonable.

Harshad J. Shah and Another v L.I.C. of India and Others


FACTS:

14

The appellant took insurance from LIC, which required premiums to be paid half yearly.
He paid the first premium, after which he was unable to pay the second to LIC. He
instead provided the check to a general agent of deposited the check.
The appellant then died, after which his wife invoked the insurance. LIC refused to pay
the insurance claiming that the premium was not paid in time, thus the policy has lapsed.
The appellants widow files a claim on behalf of the appellant, for the insurance amount.

CONTENTION OF LIC:
-

The contract of employment of the general agents contained a clause whereby the agents
were prohibited from collecting premium from the policy holders. Thus, the agents were
not given authority for the same. Giving premium to the agent will not suffice since
collecting the premium is not within the scope of his authority. Thus the policy has
lapsed.

CONTENTION OF THE APPELLANT:


-

A large number of policy holders reside in places where there is not branch office of LIC
and facility for depositing premium with LIC is not available within reasonable distance.
In such a situation, it has been prevailing practice for LIC policy holders to deposit the
same with the LIC agents. LIC knowing that this practice prevails has allowed it to
continue, and thus LIC was negligent in its service towards the policy holder.
Also, the agents received commission on the amount of premium which they collected.
Thus the act of the agent of LIC in collecting premium is within the scope of his
authority.

HOLDING:
-

The court discusses the concepts of actual authority and apparent authority. Actual
authority results from a manifestation of consent that he should represent or act for the
principal made by the principal to the agent himself. It may be express if it is given
wholly or in part by means of words or writing or it may be implied when it is regarded
by the law as the principal having given him because of the interpretation put by the law
on the relationship and dealings of the two parties. Implied authority may arise in the
form of incidental authority, i.e., authority to do whatever is necessarily or normally
incidental to the activity expressly authorised, or usual authority, i.e., authority to do
whatever an agent of the type concerned would usually have authority to do, or
customary authority, i.e., authority to act in accordance with such applicable business
customs as are reasonable. The authority of the agent may also be implied from the
circumstances of the particular case.

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The authority of the agent is apparent where it results from a manifestation made by the
principal to third parties. The doctrine of apparent authority involves the assumption that
there is in fact no authority at all. It is the authority of an agent as it appears to others.
Under this doctrine where a principal represents, or is regarded by law as representing,
that another has authority, he may be bound as against a third party by the acts of that
other person within the authority which that person appears to have though he had not in
fact given that person such authority or had limited the authority by instructions not made
known to the third party. The notion of apparent authority is essentially confined to the
relationship between principal and third party.

The court holds that there is neither express nor implied authority in this case since there
is a term in the contract of employment that agents are not permitted to collect premium.

The court also rejects the argument of apparent authority raised by counsel for the
appellant as under section 237 of the contract act. He states that the fact that LIC
accepted the premium which the agent deposited shows that LIC is representing to the
policy holders that the agent is authorized to do so. The court holds that the mere fact that
LIC accepted the premium cannot be regarded as proof for inducing the policy holders
into believing that the agents have authority to do so, especially keeping in mind the
express term of the employment contract which forbids the agents from collecting
premium. Thus, there is no apparent authority either.

The court decides the case in favour of LIC.

Shanti Lal v. Tara Chand MadanGopal


Facts
The respondent had a commission agency shop at Agra in which he carried
on the business of purchasing and selling grain and other goods for his
constituents. In October 1924, a large quantity of grain purchased by the
respondent on behalf of the appellants was lying in the godown of the
respondent. On 6th October 1924, this grain was damaged by an unexpected

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flood which came to Agra. The river Jumna rose in flood and the go-down in
which the grain was stored was submerged. Under the orders of the Health
Officer a large quantity of grain had to be destroyed.
Argument - Respondent
The respondent alleged that he was entitled to recover from the appellants
the price of the grain which he had to destroy under the order of the Health
Officer.
Argument- Appellant
They pleaded that the respondent had not acted with prudence in taking
care of the goods bailed to him and that in view of the provisions of S. 214
coupled with Ss. 151, 152 and 189, Contract Act, the bailee was responsible
for the price of goods which were lost or destroyed from his custody.
Judgment
The standard of diligence required of a bailee under Ss. 151, and
152, Contract Act, is that of the average prudent man; and where the
bailee has taken the same care of the property entrusted to him as a
reasonably careful man may be expected to take of his own goods of
the tame bulk, quality and volume as the goods bailed, he is not
responsible for the loss, destruction or deterioration of the thing
bailed.
No cast-iron standard can be laid down for the measure of the care due from
him and the nature and amount of care must vary with the posture of each
case. The Court upheld the previous Courts decisions in saying that the
bailee had not been remiss in his obligations to his principal and has not
been negligent in the care of the goods bailed to him.
The Court held that the appearance of the flood was unprecedented and had
taken the necessary precautions to store the grain. The Court very clearly
holds that the bailee was not in dereliction of his duties or guilty of
negligence and hence not liable for any damage caused.
In an emergency the bailee has the same power to act as the agent
under S. 189, Contract Act, and in cases of difficulty he is under the
same duty as has been cast upon the agent under S. 214 of the Act
which makes it incumbent on the agent to use reasonable diligence

17

in communicating with his principal and in seeking to obtain his


instructions. Whether the bailee used all reasonable diligence is in the main
a question of fact. The Court upheld earlier decisions that the bailee did use
reasonable diligence.
Appeal dismissed.
2) De Bussche v Alt

The plaintiff had to sell the ships and the ships are mortgaged to the defendant. The task of
selling the ship is delegated to a firm in china. The firm in china realizes their lack of expertise.
Then they delegate it to a firm in Japan. Who is the principle? The firm in China deals directly
with the plaintiff . Therefore the plaintiff becomes the principle. So whether the agents in Japan
is sub agent or Substituted agent .
The firm in japan becomes the buyer of one of the ship and then sells it to a prince in japan . The
sale is part cash and part credit. The Minimum price is 90000. the 90000 pounds are received by
the plaintiff. After three years the plaintiff decides to file a suit against Mr. Alt .
The status of MR.Alt ?
If Mr.Alt is a sub or substituted agent can he become the purchaser of the goods belonging the
principle ?
Can Mr. Bussche sue Mr.Alt for estoppel, acquiescence etc

The status of Mr.Alt.


There is no privity between the plaintiff and respondent if he is a sub agent. But in case of
substituted agent there is no problem of privity. The court of appeal decides that the respondent is
a substituted agent. Did they completely give away the job or merely delegated the work ? They
have completely given up the work. Hence they are the substituted agents. But for the trial court
the company was sub agency and they have acted fraud because they sold the ship to themselves.
Gilbert and company only has the right to sell the ship . So when they delegate they can only
delegate that power not the power to buy the ship themselves and then resell it. You cannot
delegate X+.

18

Implied authority customarily argument was defeated because the customary relationship could
not be proven.
ratification by acquiescence. Since you kept quiet you ratified my actions.

De Bussche v Alt:
Plaintiff 'a ships (Nymph & Columbine) were mortgaged- the mortgagee was pressing for
money- he wanted to sell ships in any of the ports which they would visit according to the charter
of employment- hired Gill& Co as agents to do the sale for a minimum price of $90000- it was
said, as the latter had no establishment in Nagasaki, they could hire a subagent- the respondent
was hired as subagent- defendant sold Columbine to a Japanese prince for 160,000 and informed
the plaintiff that the ship had been sold for 90000. Plaintiff got information from sources that the
subagent had themselves become the buyers and sold the ship at a profit- he was suspicious but
received the money- later, defendant returned to England, met the plaintiff, but plaintiff did not
mention the suspicion- later demanded accounts and sued.

Arguments for defendant:

Agent cannot delegate- so the contract between agent and the defendant did not make
them the agents of the plantiff.
If agency was created, it was terminated before the sale- they acted as purchasers and
resold the ship.
The plaintiff had acquiesced to the transaction.

Judgment: delegatus non potest delegare applies only when delegation is without knowledge and
consent of principal. Nature of transaction gives implied power to delegate. Moreover, express
power was granted.
Once created, subagency cannot be terminated without consent of principal. So argument that the
defendant was only a purchaser at time of the sale is baseless.
Ratification cant happen without complete knowledge. Acquiescence after the act has been
completed cannot be a defence as it is open for the plaintiff to bring a suit any time before the
statutory limitation period.

Unnamed PrincipalEven where the agent does not disclose the name of his principal, but discloses his own
representative character, the contract will be the contract of the principal, unless there is
something in its form or signature to show that the agent intended to be personally liable.

19

Nensukhdas v. Birdichand
Plaintiff- Birdichand
Defendant- Nensukhdas
Facts
The plaintiffs were the principals of the defendants who were commission agents. The
plaintiffs consigned 440 bales of Malkapur cotton to the defendants NensukhdasShionarayan
who advanced upon those goods between 80 and 85 per cent. of their value on railway
receipts. These railway receipts were according to the usual course of business, handed to
the defendants' MuccadamDamjiHirji, who took delivery of the goods and stored them in his
godowns. DamjiHirji has accounted for the sale of 300 of these bales to
NensukhdasShionarayan, the defendants with the exception of a small dispute about a
portion of the price of a lot of 100 bales alleged to have been sold. The remaining 140 bales
are unaccounted for. It is found that DamjiHirji was thoroughly fraudulent in his dealings.
The plaintiffs then sued the defendants for the loss suffered.
Issue
Whether the Muccadam was a sub-agent appointed by the agent or a substitute agent
appointed by the principal
Whether the original agents are liable for fraud on the part of the Muccadam (if he was sub
agent)
Arguments- Plaintiff
1. The defendants were commission agents and it was a part of custom that they
appoint muccadams in the course of business and hence ran a sub-agency.
2. The plaintiffs also ran a charge of fraud against the defendants but later abandoned
it.
Arguments- Defendant
1. The defendants on the other hand contended that the plaintiffs were responsible for
the defaults of the Muccadams as the custodians appointed by agreement with the
defendants.
2. The defendants also said that they had acted as reasonable bailees (by bailing the
goods to DamjiHirji) and had taken adequate care and prudence in the matter.
Judgment
The court holds that the Muccadam appointed was a sub-agent and not a substituted agent
because their contract was with the commission agent (the defendants) and not the
plaintiffs. According to Section 190,where an agent is employed to conduct business and the
custom of the trade empowers him in the conduct of such business to employ a sub-agent

20

or where the nature of the business is such that he must employ a sub-agent, he has
authority to do so.Under S194 of the ICA, it is laid down that when an agent, holding an
express or implied authority to name another person to act for the principal in the business
of the agency, has named another person accordingly, such person is not a sub-agent, but
an agent of the principal for such part of the business of the agency as is entrusted to him
and this is taken to be a substituted agent.

Therefore, the court concludes that whether a person is a sub agent or a


substituted agent depends on the nature of appointment- if appointed by
the principal, he is a substituted agent but if appointed by the agent, he is
a subagent. In the case of a sub-agent the principal has no right to obtain
any remedy against him except in case of fraud or wilful wrong. In the
case of a substituted agent the ordinary relations between principal and
agent immediately come into being, and the principal can of course
recover from him for any loss occasioned by his failure of duty. Therefore, in
this case, it is clear that since DamjiHirji was appointed by the defendant, he was a sub
agent. The appointment of a Muccadam by a commission agent acting for an up-country
constituent is an ordinary case of the appointment of a sub-agent, and it would make no
difference whatever whether the up-country principal knows of the appointment or does not
know of it. But where loss has been occasioned and the goods have not been kept in the
custody of the original bailee or agent but transferred by him to the custody of another
person solely for the purpose of taking care of those goods and dealing with them in the
various ways I have described, the court rejected the plea of reasonable care and prudence
can be entertained to avert the consequences of fraud or negligence on the part of the
person so entrusted with the goods. For the purpose of custody he must be a sub-agent and
if the goods are lost through his fraud or through his carelessness, there being no privity of
contract between him and the original owner, the right of the owner is against the original
agent and not against the sub-agent and where fraud is proved, he may have recourse to
the sub-agent as well.
The Court also referred to S192 to assess the liability of the agent wrt the fraud
committed by the Muccadam. The concluding clause of S. 192 gives the agent's principal a
right of action against the sub-agent, only where in performing "acts" of the nature
contemplated in the section the sub-agent has committed fraud or wilful wrong.
A fraudulent disposition by the muccadam of cotton bales before he has been
authorised to find a buyer for them would not be a fraud "in a matter within his
authority;" but after he has been authorized to find a buyer, it would be a fraud "in
a matter within his authority." The Court held that the fraudulent disposition by
DamjiHirji& Co., of the plaintiffs' bales took place after the instructions to sell the 140 bales
and therefore in a matter within DamjiHirji& Co.'s authority. The defendants therefore are
liable. The particular act was not authorized, still as the act was done in the course of
employment which was authorized, the master is liable for the act of his servant.
Appeal fails (plaintiff wins).

21

3) Bolton Partners v. Lambert


An offer of purchase was made by the Defendant, A. J. Lambert, to P. A. Scratchley, who was
acting as an agent of the Plaintiffs, Bolton Partners (Limited), but was not authorized to make
any contract for sale on 8th of December, 1886. The offer was accepted by Scratchley on 9th of
December on behalf of the Plaintiffs with a direction that the companys solicitor had been
instructed to prepare the necessary documents. On the 13th of January, 1887, the defendant
withdrew his offer on the ground that he had been misled by the statements that had been made
to him as to the value of the property. After the withdrawal, the Plaintiffs, on 28th of January,
ratified the acceptance of the offer by S.
Issues
1.
2.

Whether there ever was a completed contract between the parties?


Whether the contract was obtained by misrepresentation on the part of those seeking to
enforce it?
3.
Whether the ratification was ultr vires?
Contentions
Defendant
1.

There was no concluded contract but only negotiations. The letters relied on amounted
only to a conditional offer as formal documents were yet to be prepared. Also, other terms were
introduced by subsequent letters and hence Hussey v. Horne-Payne[1] is applicable.
2.
After the Defendant had repudiated his offer it was too late for the company to
ratify Scratchleysacceptance and such ratification was ultra vires.
3.
If there is a contract, it was induced by the misrepresentations of the companys agents.
Plaintiff
1.
2.

As soon as an offer has been accepted the contract is complete.


The ratification by the board of directors on the 28th of January, was good, and related
back to the date of the original contract; so that the repudiation by the Defendant on the 13th of
January, 1887, was of no effect
3.
There was no misrepresentation.
Judgment
Court of 1st Instance (Kekewich, j)
1.
The two letters of the 8th and 13th of December contained a distinct offer by the
Defendant and acceptance by Mr. Scratchley on behalf of the Plaintiffs and there was nothing in
the previous or subsequent negotiations to the contrary.
2.
On the evidence, that there had been no misrepresentation on the part of the Plaintiffs.
3.
As per doctrine of ratification , the ratification would have retrospective effect and hence
it would not be ultra vires.
Court Of Appeal

22

Cotton L.J.
(w.r.t 1st contention of the defendant) Mere expression of an intention to have further
documents does not prevent there being a contract. There was a binding contract constituted by
the two letters alone. Hussey v. Horne-Payne is not applicable as in that case it was not because
the subsequent letters raised a doubt, that it was held that the two original letters did not form a
completed agreement, but because the two original letters of themselves contained terms which
raised the doubt.
2.
(w.r.t 2nd contention of the defendant) The rule of ratification is applicable as per which
ratification is thrown back to the date of the act done, and that the agent is put in the same
position as if he had had authority to do the act at the time the act was done by him.
3.
On the evidence, that there had been no misrepresentation on the part of the Plaintiffs.
Lindley L. J. & Lopes, L.J.: They all concurred to Cotton L.J.s observation.
1.

Law Point s
Retrospective Effect of Ratification
Ratification is thrown back to the date of the act done, and that the agent is put in the same
position as if he had had authority to do the act at the time the act was done by him.
Exceptions to Ratification
(1) Where a vested estate is divested;
(2) Where there has been forgery;
(3) Where the ratification is after the time when the act could be done.
1.
2.
3.
4.

Criticism
Gives an inappropriately full effect to the doctrine of relation back
The third party is in the power of the principal, not merely as to whether he had made a
contract, but also as to whether he must already answer for breach of it.
When the third party discovers before any ratification that the agent is unauthorized, he
should be able to escape from the transaction rather than have to wait, if only for a reasonable
time, to see if he has a contract.
Only restricted to cases of lack of authority. If the original agreement is ineffective for
any other reason (like, lack of deed), there is no contract to withdraw from and doctrine of
relation back does not apply.
The rule of ratification unduly favours the principal because till ratification he was not bound,
and he had an option to adopt or not to adopt what had been done.

[1] Where you have a contract in letters or other such like documents, that is to say, not reduced
into a document of legal form; you are bound to look, not only at what occurred beforewhat led
up to the contractbut also at what occurred afterwards, with regard to the contract, in order to
determine the question whether there was a completed contract,

23

Bolton v. Lambert
Facts
THE Plaintiffs, Bolton Partners (Limited), were a limited company
incorporated under the Companies Acts, and were owners of a factory and
hereditaments at known as the Lavenham Sugar Works. The defendant, A.
Lambert extended an offer to Scratchley, who was the agent of the plaintiffs
but not authorized to make a contract of sale on their behalf. The offer was
sent to the plaintiffs and they ratified the sale through a series of letter.
However, the defendant withdrew his offer and sought to repudiate the
contract. The plaintiffs then filed for specific performance.
Arguments- Plaintiff
The letters of contain a clear and definite contract. There was no
misrepresentation. The ratification by the board of directors was good, and
related back to the date of the original contract; so that the repudiation by
the Defendant was of no effect.

Arguments- Defendant
On the evidence there was no concluded contract. It was all negotiation. The
letters relied on amounted only to a conditional offer. Formal documents
were intended to be prepared. It was open to the Defendant to withdraw his
offer before acceptance by the company. Therefore the attempted ratification
by the company after distinct repudiation by the Defendant, was ultr vires,
and came too late. If there is a contract, it was induced by the
misrepresentations of the company's agents.

Issues
1. Whether there ever was a completed contract between the parties;
2. Whether the contract was obtained by misrepresentation on the part of
those seeking to enforce it
3. Whether the agent acted ultra vires
Judgment
Court of First Appeal

24

The Court first stated that in order to establish whether the alleged contract
was one, the events precedent and subsequent to it must be examined. The
Court finds that there was adequate offer and acceptance by the parties and
hence a contract was indeed formed.
The Court holds that there was no misrepresentation by the company.
To establish that the contract was not ultra vires, the Court states that the
company had adopted the contract before the claim of ultra vires was made
and in this regard, refers to the doctrine of ratification- when a
principal on whose behalf a contract has been made, though it may
be made in the first instance without his authority, adopts it and
ratifies it, then, whether the contract is one which is for his benefit
and which he is enforcing, or which is sought to be enforced against
him, the ratification is referred to the date of the original contract,
and the contract becomes as from its inception as binding on him as
if he had been originally a party. Therefore, by application of this
principle, it is clear that there was no ultra vires.
Court of Appeal
The letters between the two parties sufficiently display the presence and
formation of a contract.
The principle of ratification was also held to be applicable- I think the
proper view is that the acceptance by Scratchleydid constitute a contract,
subject to its being shewn that Scratchley had authority to bind the
company. If that were not shewn there would be no contract on the part of
the company, but when and as soon as authority was given to Scratchley to
bind the company the authority was thrown back to the time when the act
was done by Scratchley , and prevented the Defendant withdrawing his offer,
because it was then no longer an offer, but a binding contract
It was held that the principle of ratification had a retrospective effect and
therefore the contract would have been complete on the day the agent
accepted on behalf of the company.
Boltons wins.
[Exceptions to Ratification
(1) Where a vested estate is divested;
(2) Where there has been forgery;

25

(3) Where the ratification is after the time when the act could be done.]

4) Keighley, Maxsted & Co. Appellants; v Durant (Carrying on Business As Bryan


Durant & Co.) Respondent.

Issue

Can the undisclosed principle ratify the contract ?


The first requisite for ratification is that , there must be a representation by the agent that he is an
agent.
According to colin, does it really matter to the third party whether the agent has an authority or
not. If there is no authority how does it matter if the situation doesnot change. Commonsensical
judgment.
The house of lords rejected this because there was no precedence. Undisclosed intentions cannot
be a ground to have a contract. There is no consensus ad idem hence no privity , no intention.
Undisclosed principle can be sued. Undisclosed principle cannot ratify. For ratification the
representation should be present. Unless you pledge the credit of the principle you cannot ratify.
The contract will be uncertain and will be void ab initio.

Keighley Maxted & Co. v. Durant


Facts
K & Co authorized Roberts, a corn merchant, to buy wheat on a joint account for himself and
them at a certain price. Roberts, on his own behalf and without authority of anybody else, bought

26

wheat at a higher price than the authorized one, from Durant. The intention that he was acting for
K& Co. as well as himself was not disclosed by Roberts to Durant. K & Co, however, later
agreed with Roberts to buy the wheat at that (high) price but eventually failed to do so. Durant
resold it at a loss and sued them for loss.
Durant Plaintiff at court of 1st instance
Roberts appellant in Court of appeal, respondent in House of Lords.
K & Co appellant in House of Lords.
Issue
Whether a contract made by a man purporting and professing to act on his own behalf alone, and
not on behalf of a principal, but having an undisclosed intention to give the benefit of the
contract to a third party, can be ratified by that third party, so as to render him able to sue or
liable to be sued on the contract.
Judgement
Day J. and a special jury ( favoured K& Co. and Durant)
It dismissed the action against the appellants (K& Co.) on the ground that there was no
ratification in law of the contract, and gave judgment against Roberts for the amount claimed.
Court of Appeal (favoured Robert)
It reversed the decision as regards the appellants, and ordered a new trial on the ground that there
was evidence for the jury that Roberts contracted on behalf of himself and the appellants.
*It, for the first time, asserted the proposition that a contract made by a man in his own name,
intending it to be on behalf of a third party who has not authorized it but keeping his intention
secret, can be ratified by that third party so as to make himself able to sue or liable to be sued on
the contract.
House Of Lords
Contentions
Appellants
1.

There is absolutely no authority in English law for the proposition, *marked, by court of
appeal.

2.

A contract made by an agent in his own name (as the present contract was) does not
require and cannot receive any ratification: it is complete in itself.
3.
The contract in the present case being complete, no third party could be introduced into it
except by a new contract, and no new contract is here made or alleged.
Respondents
1.

There are authorities in English law in favour of the proposition (Foster v. Bates,
judgment of Collins L.J., notes to Armory v. Delamirie).

27

2.

If the agent intends to make the contract on behalf of a principal, though he does not
express the intention, the contract may be ratified by the principal so as to bind him.
Opinion of Individual judges (They all concurred)
Earl of Halsbury L.C
He found the *marked observation of the court of appeal as contrary to all principles and
disagreed with the observation of the court of appeal and suggested for reversal of the ruling of
the court of appeal.
Lord Macnaghten (favoured Appellant)
He was of the same opinion as Earl of Halsbury. He pointed that civil obligations are not to be
created by, or founded upon, undisclosed intentions.On the point of lack of authority, he quoted
the observation of James L., The clearer a thing is, the more difficult it is to find any express
authority or any dictum exactly to the point.
Lord Shand
He was also of the same opinion. He found the evidences for the respondents (buying on behalf
of K & Co.) unsatisfactory and observed that there was no evidence that the appellants, by any
communication, conduct or dealing with the respondents, ratified or adopted their contract with
Roberts. He said that the result of such judgment of the court of appeal is to give one of two
contracting parties in his option, merely from what was passing in his own mind and not
disclosed, the power of saying the contract was his alone, or a contract in which others were
bound with him.
Lord James of Hereford
He also agreed to the same.He observed that D contracted with Roberts alone and he knew of no
disclosed principal other than Roberts, and there was no undisclosed principal. He pointed out
the fact that an undisclosed principal must exist at the time of the contract and such principal
cannot be brought into life after the contract has been made without any recognition of his
existence.
Lord Davey
He also allowed the appeal and made a crucial point that the rule which permits an undisclosed
principal to sue and be sued on a contract to which he is not a party, though well settled, is itself
an anomaly, and to extend it to the case of a person who accepts the benefit of an undisclosed
intention of a party to the contract would, in my opinion, be adding another anomaly to the law,
and not correcting an anomaly.
Lord Brampton
Considering the facts of the case, he observed that there is a contract between Roberts and
Durant simply, to which it was never avowedly contemplated that Keighleys should be parties.he
allowed the appeal.

28

Lord Robertson
He held that unless the contract made by the unauthorized agent purports or professes to
have been entered into on behalf of another then that contract made by the unauthorized agent
was not capable of being ratified by a stranger to it. He also observed that there is no room for
ratification until the credit of another than the agent has been pledged to the third party. Thus he
allowed the appeal.
Lord Lindley
There is an anomaly in holding a person bound to another of whom he knows nothing and with
whom he did not in fact intend to contract. He said, what Roberts intended was never disclosed
to Durant & Co., and cannot be inferred from the nature of the transaction itself. His intention,
therefore, cannot be allowed to affect the rights of the parties.

Law Point: Undisclosed principal and ratification


A contract made by a person intending to contract on behalf of a third party, but without his
authority, cannot be ratified by the third party so as to render him able to sue or liable to be sued
on the contract, where the person who made the contract did not profess at the time of making it
to be acting on behalf of a principal.
Undisclosed Principal:
Keighley Maxsted & Co v Durant:
There is an anomaly in holding a person bound to another of whom he knows nothing and with
whom he did not in fact intend to contract. But middlemen through whom contracts are made are
common and useful in business transactions and in the great mass of contracts, it is a matter of
indifference to either party whether there is an undisclosed principal or not. If he exists, it is to
say the least extremely convenient that he should be able to sue or be sued as principal and he is
only allowed to do so upon terms which exclude injustice.

The first clause of the section says that the third party shall have, as against the undisclosed
principal, the same rights which he would have against the agent, if the agent had been the
principal. The second clause should be read as governed by the first one. As against the agent,
the principal can claim the full benefit of the contract entered into by an agent in his own name,
and as against the party contracting with the agent, the principal is bound by the equities arising
between the agent and the contracting party.

29

KeighlyMaxeted Co. v. Durant


Plaintiff- Durant
Defendant- KeighlyMaxeted
Facts
ROBERTS, a corn merchant at Wakefield, was authorized by Keighley,
Maxsted& Co., the appellants, to buy wheat on a joint account for himself
and them at a certain price. Roberts having failed to buy at the authorized
price, on May 11, 1898, without authority from the appellants, made a
contract by telegram with the respondent Durant, a corn merchant in *241
London, to buy from him wheat at a higher price. Roberts made the contract
in his own name but, as he afterwards said at the trial, intending it to be on a
joint account for the appellants, Keighley, Maxsted& Co., and himself. That
intention was not disclosed by Roberts to Durant. The next day the
appellants, by their manager Wright, agreed with Roberts to take the wheat
on a joint account with him. Roberts and the appellants having failed to take
delivery of the wheat, Durant resold it at a loss and sued them for the
amount.
Issue
Whether a contract made by a man professing to act on his own behalf
alone, and not on behalf of a principal, but having an undisclosed intention to
give the benefit of the contract to a third party, can be ratified by that third
party, so as to render him able to sue or liable to be sued on the contract.

Arguments- Plaintiff
1. There is no common law authority that supports the decision of the
Court of Appeal that asserts the proposition that a contract made by a

30

man in his own name, intending it to be on behalf of a third party who


has not authorized it but keeping his intention secret, can be ratified
by that third party so as to make himself able to sue or liable to be
sued on the contract.
2. A contract made by an agent in his own name (as the present contract
was) does not require and cannot receive any ratification: it is
complete in itself. Ratification is only necessary where a contract is
made which is not valid without ratification, e.g., where an agent
professes to contract as agent for a principal named or undisclosed.
Ratification has no applicationunless the person making the contract
professes to act as agent
3. The contract in the present case being complete, no third party could
be introduced into it except by a new contract, and no new contract is
here made or alleged.
[A ratification can only be effectual between the parties, when the act is
done by the agent avowedly for or on account of the principal, and not when
it is done for or on account of the agent himself, or of some third person. This
would seem to be an obvious deduction from the very nature of a ratification,
which presupposes the act to be done for another, but without competent
authority from him; and therefore gives the same effect to the act as if it had
been done by the authority of the party for whom it purported to have been
done and as his own act. Hence it has been laid down as a maxim of the
canon law, Ratumquishabere non potest, quodipsius nomine non
estgestum.' The same rule was early recognised in the common law, and has
been recently explained in a most satisfactory manner]
Arguments- Defendant
1.

There are authorities in English law in favour of the proposition (Foster


v. Bates, judgment of Collins L.J., notes to Armory v. Delamirie).
2.
If the agent intends to make the contract on behalf of a principal,
though he does not express the intention, the contract may be ratified by
the principal so as to bind him.

Judgment
The unanimous verdict ultimately declared that an undisclosed principal
cannot ratify a contract. It may be assumed that Roberts, in the contract he
made with the respondents, intended to buy, and did buy, on the joint
account of himself and the appellants, hoping and expecting that the
appellants would, when informed of the terms of his purchase, ratify or adopt

31

the transaction as on joint account. The evidence of this is unsatisfactory,


and involves the admission of the entry made in Roberts's book, to which the
appellants were no parties, and which was not evidence of contract against
them. But at the utmost the respondents can only plead that he has proved
by his own testimony that in buying he did so on the joint account, in the
hope that the appellants would adopt or ratify the transaction.
On the other hand, it is clear that Roberts made no suggestion that he was
acting for any one but himself, or even that he had hope or expectation that
the appellants would be parties to the contract. The contract was made
avowedly for himself alone, and not on the statement that he acted on behalf
of any principal, or joint contractor, or proposed joint contractor with himself.
And it is equally clear that he had no authority from the appellants to make
any contract for them, or to make any contract in which they would be
interested, for he agreed to pay a price which was in excess of that which the
appellants were prepared to give. It is to be further noted that it cannot be
said or suggested that the appellants, by any communication with the
respondents, or by their conduct in relation to the respondents by any
dealing with them, ratified or adopted their contract with Roberts, so as in a
question with them toentitle the respondents on any such ground to maintain
that the appellants had become liable on contract to them.
The question which arises on this state of the facts is whether,
where a person who has made a contract for himself without a
suggestion that he is acting to any extent for another (an
undisclosed principal), and without any authority to act for another,
can bind a third party as principal the person with whom he
contracted, by the fact that in his own mind merely he made a
contract in the hope and expectation that his contract would be
ratified or shared by the person as to whom he entertained that
hope and expectation. The Court held that he could not. The only
contract actually made is by the person himself and for himself, and it seems
to be conclusive against the argument for the respondents, that if their
reasoning were sound it would be in his power, on an averment of what was
passing in his own mind, to make the contract afterwards either one for
himself only, as in fact it was, or one affecting or binding on another as a
contracting party, even although he had no authority for this. The result
would be to give one of two contracting parties in his option, merely from
what was passing in his own mind and not disclosed, the power of saying the
contract was his alone, or a contract in which others were bound with him.
He certainly cannot do in any case where he had no authority, when he
made the contract, to bind anyone but himself.
Therefore, the doctrine of ratification does not apply to cases where a party
acts solely in his own interest (for an undisclosed principal) and the contract
will be considered to be between the two parties only.
Appeal allowed.

32

1) Pannalal Jankidas v Mohanlal and Another

There is a duty on the paty on the agent to insure the goods which the agent has not done.
Even if there is indemnity, you should pay us the loss since the fault was yours. According
to the agents, even if we breached the contract you have to show that the loss arises from
the natural consequences . The ordinanance is not making the chain of causation.

Pannalal Jankidas v Mohanlal:


Facts: Plaintiffs, commission agents had purchased goods for the defendant and kept them in
godown in Bombay. An explosion in Bombay port damaged the goods. Governor General
promulgate ordinance awarding full compensation for insured goods and half compensation for
non insured goods and barring further suits. Plaintiff received half the compensation as goods
were not insured, sued the defendant to be indemnified for the rest. It was found that the plaintiff
had breached instruction from the plaintiff to insure the good. Defendants said they were ready to
set off the damages caused to them by the negligence of the plaintiff against the right of agent to
be indemnified.

Judgment:
Kania and Das:

33

(i) As full compensation under the Ordinance was payable on proof of the existence of a fire
insurance policy irrespective of the terms of the policy, and the non-recovery of half the
value of the goods from the Government under the Ordinance was due to the absence of a
fire insurance policy, the loss to the defendants arose directly from the neglect or breach of
duty of the plaintiffs to insure the goods as they had been instructed and agreed to do;
intervention of the Ordinance did not break the chain of causation or make the loss remote or
indirect; the Ordinance did not create any new liability but only quantified the damages; and
the fact that it did not exist at the time of the explosion and could not have been in the
contemplation of the parties was irrelevant for deciding the question of liability;
(ii) the plea of the defendants was not barred by the Ordinance inasmuch as their cause of
action against the plaintiffs was misconduct of the latter in the business of their agency, and
this cause of action was completed by the averment that there was a duty or agreement to
insure, that there was failure to perform that duty and that the failure had caused damage to
the defendants, and the quantum of the damages was not a part of the cause of action.

Patanjalishastri:
(i) The defendants' inability to recover the full value of the goods from the Government
under the Ordinance did not arise directly and naturally in the usual course of things from
the plaintiffs' failure to insure, but from independent and disconnected events, namely, the
Government's scheme for compensation, embodied in the Ordinance, the agreement with the
insurance companies regarding contribution and the consequent discrimination made by the
Government between insured and uninsured goods.
The Ordinance did not, displace the ordinary rules of law as to remoteness of damage or
amend or abrogate any terms in the fire insurance policies and it was further difficult to see
how by virtue of an Ordinance passed some months after the explosion, the right to damages
could become enlarged.
The broad principle of restitutio in integrum upon which the assessment of the quantum of
damages is based cannot be carried to its utmost logical results but must be qualified by the
rule of remoteness- 981 (ii) The bar under the Ordinance was not based upon the nature of
the cause of action but upon the damage or loss being "due to or in any way arising out of"
the explosion and the claim of the defendants was clearly barred. In any event the defendants
cannot be allowed to claim that the loss of the goods was explosion damage so as to bring
the case under s. 14 and at the same time contend that the loss was not due to or did not in
any way arise out of the explosion in order to avoid the bar under s.18.

Narandas Morardas Gaziwala and Others v S. P. Am. Papammal and


Another
Facts

34

Murugesh Chettiar, the sole proprietor and partner of the firm Krishna and Co. (the agent firm),
sued his principals Narandas Morardas Gaziwala and Lakshmi Chand & Co. for rendition of
accounts for the period of the agency. The principals also filed a suit claiming enforcement of a
promissory note the agent had executed in their favour. The agent pleaded an oral agreement by
which the principals were not to enforce the promissory note during the period of the agency and
unless the sum remained due and payable after accounting. The trial court granted a decree on
the promissory note bat directed that it should be adjusted against any sum found due after
accounting in the agent's suit. The principals went to the High Court and failing there appealed to
this Court.
ISSUES
It was contended on behalf of the appellants that
(1) An agent was not entitled in law to sue his principal for accounts and
(2) The parole agreement could not be proved in view of s. 92 of the Indian Evidence Act.
HELD:
(i)

Though an agent has no statutory right for an account from his principal nevertheless there
may be special circumstances rendering it equitable that the principal should account to the
agent. Such a case may arise when all the accounts are in the possession of the Principal and
the agent does not possess accounts to enable him to determine his claim for commission
against his principal. The right of the agent may also arise in an exceptional case when his
remuneration depends on the extent of dealings which are not known to him or where he
cannot be aware of the extent of the amount due to him unless the accounts of his principal
are gone into. This view is borne out by the decision of the Madras High Court in
Ramachandra Madhavadoss Co. v. Moovakat Moidunkutti Birankutti & Bros. Firm.
Cannanore(A.I.R.1938 Mad.707 1938 Indlaw MAD 248), of the Lahore High Court in Ram
Lal Kapur & Sons v. Asian Commercial Assurance Co. Ltd.( A.I.R. 1933 Lah. 483) and of
the Nagpur High Court in Basant Kumar and others v. Roshanlal(I.L.R. [1954] Nagpur 435).
In the special circumstances of the present case the agent was entitled to sue his principals

35

for accounts for the material period.


Rule of law and sources quoted in the judgement:
In Bowstead on Agency, 12th Edn., p. 173 it is observed as follows:
"Where the accounts between a principal and agent are of so complicated a
nature that they cannot be satisfactorily dealt with in an action at law, the agent
has a right to have an account taken in equity, but the relation of principal and
agent is not alone sufficient to entitle. an agent, to an account in equity, when
the matter can be dealt with in an section at law."
In the 14th edition of Story's Equity Jurisprudence the learned author, after
setting out the general law that an agent is not entitled to sue his principal for
accounts. observes as follows:
"There are usually exceptions to all rules, and where the principal has kept the
accounts between him and his agent and the matters and things transacted in
the course of the agency are within his own peculiar knowledge, the agent may
ask for accounting."

The second issue regarding the parole agreement to hold off the enforcement of
the promissory note deals with section 92 of the Indian Evidence Act and is
therefore not relevant to us.

Narandas Morardas Gaziwala & Ors. v. S. P. Am. Papammal & Anr.


1966 SCR 38
(agents right to claim for accounts)
FACTS:
Narandas Morardas Gaziwala and Ors. a partnership firm, carrying on business in lace
and silver thread at Surat had dealings with another firm, Krishna and Company who
acted as their agents for selling their goods in the three districts in the State of Madras
on commission basis. Murugesa Chettiar, one of the partners of Krishna & Co. tool over
all the assets and liabilities of the firm on dissolution of the firm. In respect of their
dealings Krishna & Co., became indebted in 1951. On April 1, 1951 Murugesa Chettiar

36

(hereinafter referred to as the plaintiff) executed a promissory note in favour of


Narandas Morardas Gaziwala for a sum of Rs. 7,500/- the amount ascertained as due
and payable by Krishna & Co. The plaintiff instituted a claim in the District Munsifs
Court, Kancheepuram praying for rendition of accounts from April 1, 1951 till the date of
the suit in order to ascertain the amount due and payable to him. The Surat firm in
return instituted a claim in the court of Subordinate Judge, Chingleput against the
plaintiff seeking to recover the amount due under the promissory note. Both the suits
were tried together by consent of parties.
ISSUES:
(i) Whether the plaintiff, being the agent, is entitled to sue the defendant-Surat firm for
accounts?
(ii) Whether the plaintiff is entitled to set up a parole agreement to prove the condition
precedent as to the enforceability of the promissory note?
CONTENTIONS:
Plaintiff(i)
Surat firm circumvented the terms of the contract of sole agency and privately
effected sales through others or direct to customers in those territories.
(ii) Surat firm as part of this agreement of sole agency agreed to have its indebtedness
under the promissory note adjusted towards the commission that may be earned by
him.
Surat Firm(i)
The plaintiff is precluded from setting up a parole agreement by reason of the
provisions of s. 92 of the Evidence Act.[1] The agreement that the promissory note
should be discharged by commission payable by the Surat firm was with regard to the
mode of discharge of the obligation of promissory note and not a condition precedent to
its enforceability.
HELD:
Subordinate Judge- It held that the Surat firm was liable to render an account of their
sales in those territories and granted a decree for the amount covered by the
promissory note but directed that the decretal amount should be adjusted out of the
commission that may be found due and payable on taking of accounts
High Court- The High Court, by its judgment dismissed the appeals of Surat firm.

37

SUPREME COURT:
1.

There is no provision in the Indian Contract Act that an agent can sue the
principal for the rendition of the account. The statute is not exhaustive and the right of
the agent to sue the principal for accounts is an equitable right arising under special
circumstances and is not a statutory right. Such special circumstances may arise
where all the accounts are in the possession of the principal and the agent does not
possess accounts to enable him to determine his claim for commission against his
principal. The right of the agent may also arise in an exceptional case where his
remuneration depends on the extent of dealings which are not known to him or where
he cannot be aware of the extent of the amount due to him unless the accounts of his
principal are gone into.
2.
The SC upheld the HCs stand that the transactions in respect of which the
plaintiff is entitled to commission are peculiarly within the knowledge of the principal
alone. Therefore the SC held that in the special circumstances (remuneration
depended on the volume of transactions) of this case, the plaintiff is entitled to sue
the Surat firm for accounts.
3.
The court also agreed upheld the HCs finding that the Surat firm had actually
made direct sales to customers in contravention of the contract of sole agency
granted to the plaintiff.
4.
On the question of parole agreement SC dismissed the Surat Firms contention
and upheld the HCs finding that there was a collateral oral agreement that the
obligation under the promissory note will not be enforced for 5 years and unless the
amount was due after accounting for the period of the commission agency. The SC
held that the agreement was not related to the mode of discharge of the obligation
under the promissory note but was a condition precedent to the enforceability of the
promissory note and it is open to the plaintiff to adduce evidence of oral agreement
under the 3rd proviso to s. 92 of the Evidence Act.

[1] s. 92 of the Evidence Act says- When the terms of any such contract, grant or other
disposition of property, or any matter required by law to be reduced to the form of a
document, have been proved according to the last section, no evidence of any oral
agreement or statement shall be admitted, as between the parties to any such
instrument or their representatives in interest, for the purpose of contradicting, varying,
adding to, or subtracting from, its terms :
Proviso (1) .
Proviso (2) .

38

Proviso (30) The existence of any separate oral agreement, constituting a condition
precedent to the attaching of any obligation under any such contract, grant or
disposition of property, may be proved.

GOPALDAS V THAKURDAS

Facts:
The defendants (firm called Thakurdas Damodrilal) are commission agents that purcheased
Sarson and Ghee at the instance of the plaintiff who advanced the sum of about Rs. 13, 000 to
the defendants for the same and the defendants, in making these purchases, invested some
money of their own. Because the plaintiff owed the defendants (their agents) some money on
account of these purchases, the defendants disposed of the goods and were in consequence
unable to deliver them when asked to do so.
ISSUES
Does the Agents right to lien over the property, as given under section 221 of the ICA, allow
them to sell of the plaintiffs goods? If they are, should they have to notify the principal ?
Judgment: (Again, quoted directly for easier understanding)
In cases such as the present one, where the principal owes some amount to the agent, the agent
has a right as against the principal, which is known in English Common Law as the Agent's
lien. Lord Ellenborough in Houghton v. Mathew, 8 B & P 494 (A) has described this lien "to be
the right in one man to retain that which is in his possession belonging to another until certain
demands of the person who is so in possession are satisfied." This rule of English law has been
put into a statutory form in S. 221, Indian Contract Act.
This agent's lien does not give unrestricted authority to the agent to deal with the property in
any manner the agent may like. The right which the lien confers upon the agent is limited in
nature: it enables the agent to retain the property till his dues are paid by the principal. This
right can be availed of as a defence if the principal brings an action for the recovery of the
property in the possession of the agent, or, it may afford him a ground to reclaim the property,
if the agent has been unlawfully dispossessed of it.

39

But this confers no authority on the agent to sell or otherwise dispose of the property without
the consent of the owner (principal) in order to satisfy his lien.
To this position of the agent's lien, may be added another stride which the law took and which
appears to have extended the limits of the agent's lien. It is said that although "an agent pure
and simple may not be justified in selling the principal's goods without his authority, yet where
the agent has spent money from his own pocket in purchasing the goods on behalf of the
principal, the agent is in the position of a tacit pledgee and can recover as much of his outlay as
possible by selling the goods which are in his custody". See Bar Dukan v. Gopal Singh, AIR
1928 Lah 747 (D).
Although the case does not say that the agent in such circumstances should first serve a notice
on the principal before selling the goods, but since the agent's position has been akin to that of
a pawnee (he is regarded as a tacit pledgee), I think the logical conclusion of the assumption of
that position is that like a pledgee (pawnee) where there is a default in payment of the sum due,
the agent can sell the goods only after giving reasonable notice of the sale to the principal.
This being the position of the agent's lien in law, in the instant case, it does not appear that the
agent either sold Sarson and Ghee with the consent of the principal or that the agent in order to
recover the money due to him, disposed of the commodity after giving a reasonable notice to
the principal (the plaintiff). In the circumstances, the plaintiff must be held entitled to the loss
suffered by him by the unauthorised sale by the agent.
Thus it is obvious that without authority from the plaintiff and without giving him any notice,
the agent dealt with the property of the principal. In doing so the defendants as agent of the
plaintiff exceeded the limit of their lien, and their act being in excess of the authority, they are
liable to the plaintiff for the loss which the plaintiff has sustained.

PATIRAM BANERJEE CASE


Facts:
Plaintiff, a jute broker who went by the firm name S. N Banerjee and Associates entered into
a contract with Messrs Jardine Sinner & Co Managing agents of Kankinarra on behalf of his
principal K. D. Saha. Plaintiff sent a bought note to the defendant that read thus,

40

No. D/2382.
Indian Jute Manufacturers' Associate
Jute Contract.
Calcutta, 2nd
Messrs. Jardine, Skinner & Co.
Agents, Kankinarra Jute Mills Co.,
Dear Sirs,
We have this day bought by your order and for your account from our principals.(Here
follows a description of the jute and provisions not material at this stage).Arbitration.-Any
dispute arising out of this contract shall be referred to the arbitration of the Bengal
Chamber of Commerce, whose decision shall be accepted as final and binding on both
parties to this contract.
Yours faithfully,
(Sd.) S. N. Banerjee & Co.,
Brokers.
A corresponding sold note was sent to Babu K.D. Shaha on the same date.
On the 16th September, 1913, Paintiff by letter declared Messrs. Jardine, Skinner & Co.,
Agents, Kankinarra Co., Limited, on the one hand, and Babu K.D. Shaha on the other, his
principals. On the 17th September, Messrs. Jardine, Skinner & Co., replied to Messrs. S. N.
Banerjee & Company:- "We do not agree to accept your principals' names under this
contract. The contract must, therefore, stand as originally made out." Thereafter, Messrs.
Jardine, Skinner & Co., called on the plaintiff to hand them documents for 250 bales, and on
the 30th, to which the plaintiff replied requesting them to ask the seller (K. D. Saha) direct
for the jute due under the contract. There was further correspondence but no delivery or
payment was made, and ultimately the plaintiff, received notice from the Registrar, Bengal
Chamber of Commerce, that Messrs. Jardine, Skinner & Co., had applied for arbitration. The
plaintiff repudiated the jurisdiction of the Chamber of Commerce and the arbitrators
appointed by it. The arbitrators, however, proceeded with the arbitration and made their
award directing Messrs. Banerjee & Co., to pay Messrs. Jardine, Skinner & Co.,
The case came on appeal requesting a setting aside of the award.
Issue
The Defendants primary contention was that S 230 of the Indian Contract was applicable
here since the principa was undisclosed when the original bought notice was sent to them

41

and the contract came into place and therefore the Agent (the plaintiff) was personally liable.
Judgment: (quoted from the actual judgement for better understanding)
This question is not to be solved by describing the plaintiff as an agent with an undisclosed
principal and finding what Contract Act says about a person in that predicament; that would
be a superficial mode of investigation. We must find out what was the contract between the
plaintiff on the one hand, and Messrs. Jardine, Skinner & Co., as representing the Kankinarra
Co., Ltd., on the other. For this purpose, we must examine the bought note and also the
surrounding circumstances, among them being the fact that a corresponding note was sent to
Babu K. D. Shaha. The bought note is no doubt signed by the plaintiff, and prima facie, that
would bind him, but it would only bind him to that which is expressed in that document.
If the document be examined, it does not purport to be a sale by the plaintiff even as an
agent: it is an intimation that Messrs. Jardine, Skinner & Co.'s order has been carried out by
a purchase made by the plaintiff on their account not from himself, but from some one else.
The note may be an admission of the plaintiff's employment by Messrs. Jardine, Skinner &
Co., to buy on their behalf, but the contract (if any) as between the plaintiff and them, which
it evidences, is a contract not of sale, but of employment.
This employment was to negotiate a sale and to be an intermediary, not to sell on behalf of
another.
That a person signs simply as broker may be clear from the terms of the contract as well as
from any statement to that effect appended to his signature, and this is illustrated by
"Now there is, I think, a material difference between the words sold for you to my principals'
and 'bought of you for my principals'. The rule of law, no doubt, is that, if the principal is
undisclosed, the broker saying 'bought of you for my principals' is himself liable; but this
contract says 'sold for you to my principals, i.e., I, your broker, have made a contract for my
principals, the buyers.' "
I have already pointed out that the note in this case is in the 2nd of these two forms, and, on
its true construction, I hold that the plaintiff was no more than an intermediary, and was not
an agent for sale, to whom the provisions of S. 230 of the Contract Act applies, so as to make
him liable as an agent who has not disclosed his principal's name.

42

The order of the lower court was upheld and the award given by the arbitration tribunal was
set aside.
LAW POINTS:
Express Authority
Express authority is given by the Principal to the agent by express words, spoken or
written.
Implied Authority
Implied authority is that which is inferred from the conduct of the parties, or from
nature of the employment. Divided into four types: (i) incidental authority- authority
to do that which is ordinarily or necessarily incidental to the due performance of the
express authority; (ii) usual authority- authority to do whatever is done by persons
occupying positions in particular trades or businesses; (iii) customary authorityauthority to act in accordance with the custom and usage of the place where agent
acts and (iv) authority derived from the circumstances of the case, the residuary
category.
Note: See Ss 186, 187 of Indian Contract Act

Chairman L.I.C v. Rajiv Kumar Bhaskar


2003 ACJ 86
(Implied Agency)
FACTS:
As per L.I.C salary saving scheme the employer was to deduct the premium from
the salary of the employee and deposit with L.I.C. All the related procedures were
the responsibility of the employer. Upon death of the concerned employee, the heirs
found the employer had defaulted in payment causing policy to lapse. L.I.C relied on
a clause in the acceptance letter by the employer which said he would act not as
the agent of L.I.C but as an agent of his employees.
ISSUE: Whether the employer can be treated as the agent of the L.I.C despite the
express agreement to the contrary?
CONTENTIONS:
L.I.C: As the policy was in the name of individual employee, in the event of nonpayment of premium either by employee or employer, would result in lapse of the
policy.
HELD:
The expression agent in this case may not mean to be one within the meaning of
the LIC of India (Agents) Regulation, 1972; but would mean an agent in ordinary
sense of the term. The use or omission of the word agent is not conclusive to
determine the legal nature of the relationship.
Keeping in view the fact that the Corporation did not make any offer to the
employees nor would directly make any communication with them regarding
payment or non-payment of the premium or any other matter in relation thereto
and the inability of the employee to approach the insurer directly, show that they
were to treat their employers as agents of the Corporation and the employer had a

43

key role to play in this whole affair. Furthermore, even the terms and conditions of
the policy were to be performed only through the employer. This only points to the
fact that the employers would be the agents of the insurer.
When the existence of an agency relationship would help to decide an individual
problem and the fact permits a court to conclude that such a relationship existed at
a material time, then whether or not any express or implied consent to the creation
of an agency may have been given by one party to another, the court is entitled to
conclude that such relationship was in existence
at that time for the purpose in
question.

44