INDIAN CONTRACT ACT, 1872

AGENT TO BE INDEMNIFIED AGAINST CONSEQUENCES OF ACTS DONE IN GOOD
FAITH
Where one person employs another to do an act, and the agent does the act in good faith, the
employer is liable to indemnify the agent against the consequences of that act, though it causes
an injury to the rights of third persons.
COMMERCIAL & INDUSTRIAL LAWS
INDIAN CONTRACT ACT, 1872
A 58
Illustrations
(a) A, a decree-holder and entitled to execution of B’s goods, requires the officer of the Court
to seize certain goods, representing them to be the goods of B. The officer seizes the goods,
and is sued by C, the true owner of the goods. A is liable to indemnify the officer for the
sum which he is compelled to pay to C, in consequence of obeying A’s directions.
(b) B, at the request of A, sells goods in the possession of A, but which A had no right to
dispose of. B does not know this, and hands over the proceeds of the sale to A. Afterwards
C, the true owner of the goods, sues B and recovers the value of the goods and costs. A is
liable to indemnify B for what he has been compelled to pay to C and for B’s own expenses.
NON-LIABILITY OF EMPLOYER OF AGENT TO DO A CRIMINAL ACT
Where one person employs another to do an act which is criminal, the employer is not liable to
the agent, either upon an express or an implied promise, to indemnify him against the
consequences of that act.
Illustrations
(a) A employs B to beat C, and agrees to indemnify him against all consequences of the act. B
thereupon beats C, and has to pay damages to C for so doing. A is not liable to indemnify
B for those damages.
(b) B, the proprietor of a newspaper, publishes, at A’s request, a libel upon C in the paper,
and A agrees to indemnify B against the consequences of the publication, and all costs and
damages of any action in respect thereof. B is sued by C and has to pay damages, and also
incurs expenses. A is not liable to B upon the indemnity.
EFFECT OF AGENCY ON CONTRACT WITH THIRD PERSONS ENFORCEMENT AND
CONSEQUENCES OF AGENT’S CONTRACTS
Contracts entered into through an agent, and obligations arising from acts done by an agent,
may be enforced in the same manner, and will have the same legal consequences, as if the
contracts had been entered into and the acts done by the principal in person.
Illustrations
(a) A buys goods from B, knowing that he is an agent for their sale, but not knowing who is
the principal. B’s principal is the person entitled to claim from A the price of the goods,
and A cannot, in a suit by the principal, set off against that claim a debt due to himself
from B.
(b) A, being B’s agent with authority to receive money on his behalf, receives from C, a sum of
money due to B. C is discharged of his obligation to pay the sum in question to B.
COMMERCIAL & INDUSTRIAL LAWS A 59
COMPENSATION TO AGENT FOR INJURY CAUSED BY PRINCIPAL’S NEGLECT
The principal must make compensation to his agent in respect of injury caused to such agent
by the principal’s neglect or want of skill.
Illustration
A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The
scaffolding is unskillfully put up, and B is in consequence hurt. A must make compensation to
B.
PRINCIPAL HOW FOR BOUND, WHEN AGENT EXCEEDS AUTHORITY
When an agent does more than he is authorised to do, and when the part of what he does,
which is within his authority, can be separated from the part which is beyond his authority, so
much only of what he does as is within his authority is binding as between him and his principal.
Illustration
A, being owner of a ship and cargo, authorizes B to procure an insurance for 4,000 rupees on
the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum on the
cargo. A is bound to pay the premium for the policy on the ship, but not the premium for the
policy on the cargo.
PRINCIPAL NOT BOUND WHEN EXCESS OF AGENT’S AUTHORITY IS NOT
SEPARABLE
Where an agent does more than he is authorised to do, and what he does beyond the scope of
his authority cannot be separated from what is within it, the principal is not bound to recognise
the transaction.
Illustration
A authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of 6,000
rupees. A may repudiate the whole transaction.
CONSEQUENCES OF NOTICE GIVEN TO AGENT
Any notice given to or information obtained by the agent, provided it be given or obtained in
the course of the business transacted by him for the principal, shall, as between the principal
and third parties, have the same legal consequence as if it had been given to or obtained by the
principal.
Illustrations
(a) A is employed by B to buy from C certain goods, of which C is the apparent owner, and
COMMERCIAL & INDUSTRIAL LAWS
INDIAN CONTRACT ACT, 1872
A 60
buys them accordingly. In the course of the treaty for the sale, A learns that the goods
really belonged to D, but B is ignorant of that fact. B is not entitled to set off a debt owing
to him from C against the price of the goods.
(b) A is employed by B to buy from C goods of which C is the apparent owner. A was, before
he was so employed, a servant of C, and then learnt that the goods really belonged to D,
but B is ignorant of that fact. In spite of the knowledge of his agent, B may set off against
the price of the goods a debt owing to him from C.
AGENT CANNOT PERSONALLY ENFORCE, NOR BE BOUND BY, CONTRACTS ON
BEHALF OF PRINCIPAL.
In the absence of any contract to that effect, an agent cannot personally enforce contracts entered
into by him on behalf of his principal, nor is he personally bound by them.
Presumption of contract to the contrary.—Such a contract shall be presumed to exist in the
following cases :—
(1) Where the contract is made by an agent for the sale or purchase of goods for a merchant
resident abroad ;
(2) Where the agent does not disclose the name of his principal; and
(3) Where the principal, though disclosed, cannot be sued.
RIGHTS OF PARTIES TO A CONTRACT MADE BY AGENT NOT DISCLOSED
If an agent makes a contract with a person who neither knows, nor has reason to suspect, that
he is an agent, his principal may require the performance of the contract; but the other contracting
party has, as against the principal, the same right as he would have had as against the agent if
the agent had been the principal.
If the principal discloses himself before the contract is completed, the other contracting party
may refuse to fulfil the contract, if he can show that, if he had known who was the principal in
the contract, or if he had known that the agent was not a principal, he would not have entered
into the contract.
PERFORMANCE OF CONTRACT WITH AGENT SUPPOSED TO BE PRINCIPAL
Where one man makes a contract with another, neither knowing nor having reasonable ground
to suspect that the other is an agent, the principal, if he requires the performance of the contract,
can only obtain such performance subject to the rights and obligations subsisting between the
agent and the other party to the contract.
Illustration
A, who owes 500 rupees to B, sells 1,000 rupees worth of rice to B. A is acting as agent for C in
the transaction, but B has no knowledge nor reasonable ground of suspicion that such is the
case. C cannot compel B to take the rice without allowing him to set off A’s debt.
COMMERCIAL & INDUSTRIAL LAWS A 61
RIGHT OF PERSON DEALING WITH AGENT PERSONALLY LIABLE
In cases where the agent is personally liable, a person dealing with him may hold either him or
his principal, or both of them, liable.
Illustration
A enters into a contract with B to sell him 100 bales of cotton, and afterwards discovers that B
was acting as agent for C. A may sue either B or C, or both, for the price of the cotton.
CONSEQUENCE OF INDUCING AGENT OR PRINCIPAL TO ACT ON BELIEF THAT
PRINCIPAL OR AGENT WILL BE HELD EXCLUSIVELY LIABLE
When a person who has made a contract with an agent induces the agent to act upon the
belief that the principal only will be held liable, or induces the principal to act upon the
belief that the agent only will be held liable, he cannot afterwards hold liable the agent or
principal respectively
LIABILITY OF PRETENDED AGENT
A person untruly representing himself to be the authorised agent of another, and thereby
inducing a third person to deal with him as such agent, is liable, if his alleged employer does
not ratify his acts, to make compensation to the other in respect of any loss or damage which he
has incurred by so dealing.
PERSON FALSELY CONTRACTING AS AGENT NOT ENTITLED TO PERFORMANCE
A person with whom a contract has been entered into in the character of agent, is not entitled
to require the performance of it if he was in reality acting, not as agent, but on his own account.
LIABILITY OF PRINCIPAL INDUCING BELIEF THAT AGENT’S UNAUTHORIZED
ACTS WERE AUTHORIZED
When an agent has, without authority, done acts or incurred obligations to third persons on
behalf of his principal, the principal is bound by such acts or obligations, if he has by his words
or conduct induced such third persons to believe that such acts and obligations were within
the scope of the agent’s authority.
Illustrations
(a) A consigns goods to B for sale, and gives him instructions not to sell under a fixed price. C,
being ignorant of B’s instructions, enters into a contract with B to buy the goods at a price
lower than the reserved price. A is bound by the contract.
COMMERCIAL & INDUSTRIAL LAWS
INDIAN CONTRACT ACT, 1872
A 62
(b) A entrusts B with negotiable instruments endorsed in blank. B sells them to C in violation
of private orders from A. The sale is good.
EFFECT, ON AGREEMENT, OF MISREPRESENTATION OR FRAUD BY AGENT
Misrepresentations 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
misrepresentations made, or frauds committed, by agents, in matters which do not fall within
their authority, do not affect their principals.
Illustrations
(a) A, being B’s agent for the sale of goods, induces C to buy them by a misrepresentation,
which he was not authorized by B to make. The contract is voidable, as between B and C,
at the option of C.
(b) A. the captain of B’s ship, signs bills of lading without having received on board the goods
mentioned therein. The bills of lading are void as between B and the pretended consignor.