Page 126 - DCOM103_COMMERCIAL_LAW

Unit 12: Law of Agency

4. The principal will be liable even for misrepresentations made or frauds committed by Notes
agent in the business of agency for his own benefit. But misrepresentations made or frauds

committed by agents in matters beyond their authority do not affect their principals
(s.238).

Examples: (i) 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.
(ii) 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.
5. The principal remains liable to the third parties even where his name was not disclosed.
The third parties, on discovering his name, can proceed against him on the contract.

6. The principal is bound by any notice or information given to the agent in the course of
business transacted by him.
7. The liability of the principal continues even in cases where agent is held personally liable.
Section 223 provides an option to the third parties to either sue the principal or agent or
both.

Undisclosed Principal

Where agent, though discloses the fact that he is agent working for some principal, conceals
the name of the principal, such a principal is called an undisclosed principal. The liability of an
undisclosed principal is similar to that of a disclosed principal unless there is a trade custom
making the agent liable. However, the undisclosed principal must exist and must also be the
principal at the time the contract is made. He cannot be brought into existence as a principal after
the contract has been concluded.

Concealed Principal

Where agent conceals not only the name of the principal but the very fact that there is a principal,
the principal is called a concealed principal. In such a case, the third parties are not aware of the
existence of the principal and regard the agent as the person contracting for himself. The third
parties, thus, must look to the agent for payment or performance and the agent may sue or be
sued on the contract. Legal position in this regard is as follows:
1. If the principal wishes to intervene, he may require the performance of the contract, but the
other party has, as against him (principal), the same rights as he would have had as against
the agent if the agent has been principal.
2. Para II of S. 231 provides that in such a case, if the principal discloses himself before the
contract is completed the other contracting party may refuse to fulfill 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 the principal, he would not have entered into the contract.
3. If the principal requires performance of the contract, he can only obtain such performance
subject to the rights and obligations subsisting between the agent and the other party to the
contract.

Example: ‘A’ who owes Rs 500 to B, sells 1,000 rupees worth of rice to B. A is
acting as agent for C in the transaction, but B has neither 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.

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