Agency Part 3
Section 222. Agent to be indemnified against consequences of lawful acts.
An employer (principal) must indemnify the agent for all consequences arising from lawful acts done in the exercise of the agent’s authority.
It protects the agent from personal loss when performing duties within the scope of their authority.
The agent is protected against losses for actions lawfully undertaken on the principal’s behalf, even if the principal refuses or the contract fails.
Illustrations:
(a).
B, in Singapore, contracts with C on instructions from A (Calcutta).
A fails to send goods.
C sues B.
B defends under A’s authorization, paying damages, costs, and expenses.
A must reimburse B.
(b).
B, a Calcutta broker, buys 10 casks of oil for A.
A refuses to receive the goods.
C sues B, who defends but loses.
B incurs costs.
A is liable for B’s expenses and damages.
Section 223. Agent to be indemnified against consequences of acts done in good faith.
If an agent acts in good faith under the principal’s instructions, the principal must indemnify the agent for any consequences, even if the act injures the rights of third parties.
The idea is to protects agents who honestly follow instructions, shielding them from personal loss due to reliance on the principal’s authority.
Good faith execution of instructions protects the agent from liability, even if a third party suffers loss.
Illustrations:
(a).
A, entitled to seize B’s goods, instructs a court officer to seize certain goods, claiming they belong to B.
The officer seizes them, but C is the true owner and sues.
A must indemnify the officer for the amount paid to C.
(b).
B, at A’s request, sells goods belonging to C (unknown to B) and hands proceeds to A.
C sues and recovers the value plus costs.
A must indemnify B for what he paid to C and B’s expenses.
Section 224. Non-liability of employer of agent to do a criminal act.
If a principal employs an agent to commit a criminal act, the principal cannot be held liable to indemnify the agent for any consequences arising from that act.
It prevents principals from using indemnity promises to authorize illegal or criminal acts through others.
Indemnity does not cover illegal acts; the law will not enforce promises to commit crimes.
Illustrations:
(a).
A hires B to beat C and promises to indemnify B for consequences.
B beats C and has to pay damages.
A is not liable to indemnify B.
(b).
A asks B, a newspaper proprietor, to publish a libel against C and promises indemnity.
B is sued and pays damages and costs.
A cannot claim indemnity liability.
Section 225. Compensation to agent for injury caused by principal’s neglect. Effect of agency on contracts with third persons
If an agent is injured due to the principal’s negligence or lack of skill, the principal is liable to compensate the agent.
It protects agents from harm caused by the principal’s careless actions or incompetence.
Liability arises even if the agent is performing their duties properly; the negligence of the principal is the cause.
Illustration:
A employs B as a bricklayer and puts up the scaffolding himself.
The scaffolding is improperly erected, and B is injured as a result.
A must compensate B.
Section 226. Enforcement and consequences of agent’s contracts.
Contracts made through an agent have the same legal effect as if the principal had entered into them personally.
The principal is bound by the acts of the agent done within their authority.
Therefore, the dealings through agents are legally recognized and enforceable.
The principal, not the agent, is the party entitled to enforce or be bound by contracts made through the agent.
Illustrations:
(a).
A buys goods from B, knowing B is acting as an agent, but does not know the identity of B’s principal.
The principal of B can claim the price of the goods from A.
A cannot offset the claim by alleging a debt owed by B to himself.
(b). In the same scenario:
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 to B.
Section 227. Principal how far bound, when agent exceeds authority.
If an agent does more than what he was authorized to do, the principal is bound only by the part the agent was actually authorized to do.
This applies only when the authorized and unauthorized parts can be clearly separated.
The principal’s liability is limited to the agent’s authorized acts when excess acts are separable.
Illustration:
A, 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 (authorized) and another for 4,000 rupees on the cargo (unauthorized).
A is bound to pay the premium for the ship insurance.
A is not bound to pay the premium for the cargo insurance.
Section 228. Principal not bound when excess of agent’s authority is not separable.
When an agent acts beyond his authority, and the unauthorized part cannot be separated from the authorized part, the principal is not bound by any of it.
The entire transaction may be repudiated.
Illustration:
(a).
A authorizes B to buy 500 sheep.
B buys 500 sheep and 200 lambs for a total of 6,000 rupees.
A may repudiate the whole transaction, because the unauthorized purchase of lambs cannot be separated from the authorized purchase of sheep
If the unauthorized acts are inseparable, the principal escapes liability entirely.
Section 229. Consequences of notice given to agent.
When an agent receives any notice or information while doing the principal’s business, the law treats it as if the principal has received it.
This applies when dealing with third parties who rely on the fact that the agent is acting for the principal.
So , the information given to the agent is the information given to the Principal.
Only notice or information obtained in the course of authorized business for the principal affects the principal’s rights and obligations.
Illustrations:
(a).
A is employed by B to buy certain goods from C, who appears to be the owner.
During negotiations, A learns the goods actually belong to D, but B is unaware.
B cannot set off a debt owed by C against the price of the goods.
Knowledge of the agent in this case does not bind the principal if it was acquired outside proper agency or unrelated circumstances.
(b).
A is employed by B to buy goods from C.
Before being employed, A was C’s servant and had learned the goods actually belong to D.
B is ignorant of this fact.
Despite A’s prior knowledge, B may set off a debt owed by C against the price of the goods.
Here, the agent’s knowledge before employment does not bind the principal.
Section 230. Agent cannot personally enforce, nor be bound by, contracts on behalf of principal. Presumption of contract to contrary.
Normally, when an agent makes a contract for the principal, the agent cannot personally enforce it.
The agent also cannot be personally held liable under that contract.
This changes only if there is a specific agreement saying the agent will be personally bound or can personally sue.
The default legal position protects agents from personal liability unless the circumstances fall into one of the presumptive exceptions above.
Presumed exceptions:
A personal contract between the agent and third party is presumed to exist in these cases:
The contract is made by an agent for the sale or purchase of goods for a merchant residing abroad.
The agent does not disclose the principal’s name when making the contract.
The principal is disclosed but cannot be sued. (Ex. Due to legal incapacity or immunity.)
Section 231. Rights of parties to a contract made by agent not disclosed.
When an agent makes a contract without disclosing that he is acting for a principal, the following applies:
The principal can enforce the contract and require performance.
The other contracting party retains the same rights against the principal as they would have had against the agent if the agent had been the principal.
If a principal discloses their identity before the contract is fully completed, the other party can refuse to perform the contract.
But they can do this only if they prove that they would not have entered into the contract had they known the real principal earlier.
So, revealing the true principal late can let the other party back out, if the identity of the principal genuinely mattered to their decision.
Non-disclosure protects the agent initially, but the principal can enforce rights unless disclosure changes the contracting party’s willingness to perform.
Section 232. Performance of contract with agent supposed to be principal.
If both parties enter a contract without knowing that one of them is actually an agent, the hidden principal can later step in and enforce the contract.
However, the principal must accept all rights and obligations that already exist between the agent and the other contracting party.
The principal cannot claim better terms or ignore any defences the other party already has against the agent.
Essentially , the principal would step into the agent’s shoes, subject to pre-existing rights of the other party against the agent.
Illustration:
A owes 500 rupees to B.
A sells 1,000 rupees worth of rice to B as an agent for C, but B has no knowledge of this agency.
C cannot compel B to accept the rice without allowing B to set off A’s 500 rupees debt.
Section 233. Right of person dealing with agent personally liable.
Personal liability of the agent allows the other party flexibility in enforcing the contract.
Illustration:
A contracts with B to sell 100 bales of cotton. Later, A discovers that B was acting as an agent for C.
A may sue B, or C, or both for the price of the cotton.
Section 234. Consequence of inducing agent or principal to act on belief that principal or agent will be held exclusively liable.
If someone tricks an agent into thinking that only the principal will be responsible, that person cannot later try to make the agent liable.
If someone tricks the principal into thinking that only the agent will be responsible, that person cannot later try to make the principal liable.
When you mislead either the agent or the principal about who will be liable, you lose the right to enforce liability against the party you misled.
Section 235. Liability of pretended agent.
If someone pretends to be another person’s agent without actually having authority, they are responsible for the consequences.
If a third person believes this false claim and suffers loss because of it, the fake “agent” must compensate them.
This applies when the real principal does not ratify or approve the unauthorized acts.
Section 236. Person falsely contracting as agent not entitled to performance.
A person who contracts in the character of an agent, but is actually acting on his own account, cannot demand performance of the contract.
Only a genuine agent acting for a principal can enforce a contract in the agent’s capacity.
Section 237. Liability of principal inducing belief that agent’s unauthorized acts were authorized.
If an agent does something without actual authority, the principal is normally not bound.
But if the principal, by words or behaviour, makes third parties believe that the agent has authority, then the principal becomes responsible.
The principal cannot later deny liability if third parties reasonably relied on the belief created by the principal.
Illustrations:
(a).
A gives B goods for sale, instructing not to sell below a fixed price.
C, unaware of this, contracts with B to buy below that price.
A is bound by the contract.
(b).
A gives B negotiable instruments endorsed in blank.
B sells them contrary to A’s private instructions.
The sale is valid and A is bound.
Section 238. Effect, on agreement, of misrepresentation or fraud by agent.
Misrepresentations or frauds made by an agent within the scope of their authority have the same legal effect as if committed by the principal.
Misrepresentations or frauds outside the agent’s authority do not bind the principal.
Illustrations:
(a).
A, B’s agent for selling goods, induces C to buy by misrepresentation.
If A was not authorized to make that misrepresentation, the contract is voidable at C’s option.
(b).
A, captain of B’s ship, issues bills of lading without the goods being on board.
The bills are void as between B and the purported consignor.
