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Mercantile Laws-I

Notes
Example: 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.
2. The principal is liable for the acts of the agent falling not only within the actual authority
but also within the scope of his apparent or ostensible authority.
3. Where agent exceeds his authority and 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 the principal.

Example: A, being the owner of a ship and cargo, authorizes B to procure an insurance
for ` 4,000 on the ship. B procures a policy of ` 4,000 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.

However, where agent does more than he is authorized 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
by the transaction (s.228).

Example: Agent is authorized to draw a bill for ` 5,000 but he draws a bill for ` 10,000,
the principal will not be liable even to the extent of ` 5,000.

4. The principal will be liable even for misrepresentations made or frauds committed by
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.

9.5.3 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.

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