DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY, LUCKNOW

Law of Contracts-II
Topic:
“Contracts entered into by an agent can be enforced in same
manner as if they were entered into by the principal in
person.”

Submitted to: Submitted by:

Dr. V. Vegesna Shashish Shandilya
Associate Professor (LAW) Roll No: 190101133
Dr. Ram Manohar Lohiya B.A.LLB (Hons.)/ III Sem.
National Law University, Lucknow. Sec:- B
 ACKNOWLEDGMENT
I would like to convey my gratefulness to a lot many people who have helped
and supported me in making this project.
I would like to thank my family and friends who have always been supportive of
my endeavours.
Words are inadequate in offering my deep sense of gratitude to
Dr.V.Vegesna for her precious guidance. From assigning me this topic to
instructing me on how I should move forward with my work, her enthusiasm
and knowledge has always been of utmost importance.
I know that despite my best efforts some discrepancies might have crept in
which I believe my humble Professor would forgive.
Thanking You All

Shashish Shandilya
 TABLE OF CONTENTS

Table of Contents
Acknowledgment.......................................................................................................................2

Table of Contents.......................................................................................................................3

Introduction................................................................................................................................4

Agent’s Authority.......................................................................................................................5

Types of authority......................................................................................................................6

Agent exceeds authority.............................................................................................................8

Conclusion..................................................................................................................................9

References................................................................................................................................10
 INTRODUCTION

The key to determining whether a principal is liable for contracts made by his agent is
authority: was the agent authorized to negotiate the agreement and close the deal? Obviously,
it would not be sensible to hold a contractor liable to pay for a whole load of lumber merely
because a stranger wandered into the lumberyard saying, “I’m an agent for ABC Contractors;
charge this to their account.” To be liable, the principal must have authorized the agent in
some manner to act in his behalf, and that authorization must be communicated to the third
party by the principal. An agent is a person employed to do any act for another or to represent
another in dealings with third persons.1 The person for whom such act is done, or who is so
represented, is called the ‘principal’.

In India, the agent and principal share a relationship that is contractual in nature, and
therefore it is governed by the terms and conditions of the contract between them. Chapter X
of The Indian Contract Act, 1872 provides the basic structure of rules and regulations that
basically govern the performance and formation of any type of contract including the agency
contract. In agency contracts, there exists a legal relationship between two people whereby
one person acts on behalf of the other. The person acting on behalf of the other is called
an agent, and the person from whom the agent derives authority to act is called the principal.
The law of agency is based on the Latin maxim “Qui facit per alium, facit per se,” which
means, “He who acts through another is deemed in law to do it himself”. When an agent acts
on the behalf of the principal, he creates a relationship between the principal and the third
person. For contracts entered into through an agent, the principal becomes bound towards a
third person as if he entered into the contract himself.

1
The Indian Contract Act 1872, s. 182.
 AGENT’S AUTHORITY

Section 226 of the Contract Act gives the statutory effect to the principle by declaring that:
“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.”2

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 an agent and more particularly its scope are subjects of
some controversy. The uncertainty is largely due to the fact that the authority of an agent
does not depend upon one source. It emanates from principal, but its dimensions depend upon
legal inferences, which, in turn, depend upon the purpose of the agency, the surrounding
circumstances and a desire to protect bona fide commercial transactions.
The authority of an agent means his capacity to bind the principal. It refers to the sum total of
the acts it has been agreed between principal and agent that the agent should do on behalf of
the principal. When the agent does any such acts, it is said he has acted within his authority as
was seen in the case of Nand Lal Thanvi v. LR of Goswami Brij Bhushan.3

It has been seen in the case of Palestar Electronics Private Limited v. Additional
Commissioner4 that the acts of the agent within the scope of his authority bind the principal.
Contracts entered into through an agent, and obligations arising from acts done by the 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

2
The Indian Contract Act 1872, s. 226.
3
Nand Lal Thanvi v LR of Goswami Brij Bhushan, AIR 1973 All 302.
4
Palestar Electronics Pvt Ltd v Additional Commissioner, (1978) 1 SCC 636.
5
Supra, Note 2.
 TYPES OF AUTHORITY

Actual authority of an agent is the authority conferred on him by the principal. It is of 2

kinds, namely, express or implied.

1. Express Authority
The strongest form of authority is that which is expressly granted, often in written form.
The principal consents to the agent’s actions, and the third party may then rely on the
document attesting to the agent’s authority to deal on behalf of the principal. One
common form of express authority is the standard signature card on file with banks
allowing corporate agents to write checks on the company’s credit.
The scope of express authority is worked out by the construction of words used in the
documents. A case on this point can be that of Attwood v. Munnings6 where a principal,
while going abroad, authorised his agent and partner to carry on his business, and his wife
to accept bills on his behalf for his personal business, he was not held bound when his
wife accepted bills on his behalf for the business, which the agent was conducting and
which was different from his personal business.
In the case of Reid v. Rigby7 where the agent obtained a loan outside his authority by
signing a cheque on behalf of his principal to pay the principal’s workmen, the principal
was held bound.

But where the third party has knowledge of the limitation of the agent’s authority or could
have discovered it by reasonable examination, he would be bound by it as held in the case
of Ferguson v. Um Chand Boid.8 An agent cannot borrow on behalf of his principal
unless he has clear authority to do so. Where the agent has the power to borrow, the fact
that he borrowed beyond the authorised limit, does not prevent the third party from
holding the principal liable as was held in the case of Withington v. Herring.9

2. Implied Authority
6
Attwood v Munnings, (1827) 7 B&C 278.
7
Reid v Rigby, (1894) 2 QB 40.
8
Ferguson v Um Chand Boid, (1905) 33 Cal 343.
9
Withington v Herring, (1829) 5 Bing 442.
 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.10 The distinction between express and implied authority
depends merely on whether the authority is delimited by words or by conduct. In the case
of Ramanathan v. Kumarappa,11 an estate agent was appointed to find a purchaser for a
certain property. He accepted a deposit from a prospective customer and misappropriated
it. The principal was held liable because an estate agent has an implied authority to take a
deposit. However, he cannot receive payment or give any warranty unless actually
authorised as held in the case of Foujdar Kameshwar Dutt Singh v. Ghanshyamdas.12

Even when there is no implied authority, in an emergency the agent may act in ways that
would in the normal course require specific permission from the principal. If unforeseen
circumstances arise and it is impracticable to communicate with the principal to find out
what his wishes would be, the agent may do what is reasonably necessary in order to
prevent substantial loss to his principal.

The rule that a person’s position can carry with it implied authority is fundamental to
American business practice. But outside the United States this rule is not applicable, and
the business executive traveling abroad should be aware that in civil-law countries it is
customary to present proof of authority to transact corporate business—usually in the
form of a power of attorney. This is not always an easy task. Not only must the power of
the traveling executive be shown but the right of the corporate officer back in the United
States to delegate authority must also be proven.

10
The Indian Contract Act 1872, s. 187.
11
Ramanatham v Kumarappa, AIR 1938 Cal 423.
12
Foujdar Kameshwar Dutt Singh v Ghanshyamdas, 1987 Supp SCC 689.
 AGENT EXCEEDS AUTHORITY

When an agent does more than he is authorized to do, and when the part of what he does,
which is within his authority, can be separated from the part which is beyond his authority, so
much only of what he does as is within his authority is binding as between him and his
principal.13 When an agent does more than he is authorized to do, and what he does beyond
the scope of his authority cannot be separated of his authority cannot be separated from what
is within it, the principal is not bound to recognize the transaction.14

In the case of Brains v. Ewing,15 an agent is authorized to insure a ship. He insures the ship as
well as the goods under separate policies. The principal is bound only by the policy on the
ship. If he had taken out only one policy in excess of instructions, the principal would not
have been bound.
Where the agent was authorized to sell half a right over a property and he contracted to sell
all the rights, the principal was held to be bound to the extent of half rights, they being
separable from the rest.16
Misrepresentation made, or frauds committed, by agents acting in the course of their business
for their principals, have the same effect on agreements made by such agents as if such
misrepresentations or frauds had been made or committed by the principals; but
misrepresentation made, or frauds committed by agents, in matters do not fall within their
authority, do not affect their principals. 17 L.C.B. Gower has stated the position of English
Law in the following words:
“The law is that a principal is not liable for fraud in respect of his agent’s acts unless
a. He intends or knowingly permits the agent to make a false statement, or
b. His agent acting within the actual or apparent scope of his authority makes a
statement with knowledge of its falsity or recklessly not caring whether it be true or
false.”18

13
The Indian Contract Act 1872, s. 227.
14
The Indian Contract Act 1872, s. 228.
15
Brains v Ewing, (1866) LR 1 Ex 320.
16
Ahammed v Mammad Kunhi, AIR 1987 Ker 228.
17
The Indian Contract Act 1872, s. 238.
18
Singh, Avtar Law of Contracts and Specific Relief Page 804 (Twelfth Edition).
 CONCLUSION
Over the years, it has been seen that an agent plays several roles in a contract. He has to step
into the shoes of the principal, yet is excluded from liability for his actions in general. Hence,
the limits of his authority have been a question of debate and pondering for several decades
since the emergence of the Agent-Principal relationship idea. Several judges over a span of
time, in various cases that have been covered in the research paper have expressed varying
opinions and views regarding the authority of an agent. In lieu of simplifying the task of
deciding this authority, several classes of agents were also identified. The responsibilities and
underlying powers of these agents differ, depending on the work they carry out.
An agent is often seen as a person who steps into the shoes of his principal and carries out all
tasks like the principal would do in similar circumstances, with his utmost diligence and
vigilance. A general rule that has been evolved to check an agent’s liability is his presence or
lack of reasonable care and attention to the work at hand. His authority, if exceeded, can be
challenged by the principal in a court of law; however, the third party which has entered into
the contract in question shall have a binding right on it.
 REFERENCES
Cases
Ahammed v Mammad Kunhi, AIR 1987 Ker 228.....................................................................8
Attwood v Munnings, (1827) 7 B&C 278.................................................................................6
Brains v Ewing, (1866) LR 1 Ex 320.........................................................................................8
Ferguson v Um Chand Boid, (1905) 33 Cal 343.......................................................................6
Foujdar Kameshwar Dutt Singh v Ghanshyamdas, 1987 Supp SCC 689..................................7
Nand Lal Thanvi v LR of Goswami Brij Bhushan, AIR 1973 All 302.....................................5
Palestar Electronics Pvt Ltd v Additional Commissioner, (1978) 1 SCC 636...........................5
Ramanatham v Kumarappa, AIR 1938 Cal 423.........................................................................7
Reid v Rigby, (1894) 2 QB 40...................................................................................................6
Withington v Herring, (1829) 5 Bing 442..................................................................................6

Statutes
The Indian Contract Act 1872, s. 182........................................................................................4
The Indian Contract Act 1872, s. 187........................................................................................7
The Indian Contract Act 1872, s. 226........................................................................................5
The Indian Contract Act 1872, s. 227........................................................................................8
The Indian Contract Act 1872, s. 228........................................................................................8
The Indian Contract Act 1872, s. 238........................................................................................8

Books
Singh, Avtar Law of Contracts and Specific Relief Page 804 (Twelfth Edition).......................8