58. A, managing clerk of a solicitor’s firm, had authority to transact conveyancing business on behalf of the firm. X, a client of the firm gave documents for preparing a sale deed. ‘A’ dealt with that property for his own benefit. The client ‘X’ sued the solicitor’s firm. Decide.

1. Facts of the Case

• A, the managing clerk of a solicitor’s firm, was employed and authorized to transact conveyancing work (i.e., to handle the preparation of legal documents for transfer of property).
• X, a client of the firm, entrusted title documents and related papers to A for the purpose of preparing a sale deed for the sale of his property.
• However, instead of performing his professional duty, A fraudulently misused the documents and dealt with the property for his own personal benefit, possibly transferring or pledging it without authority.
• The client X, having suffered loss, filed a suit against the solicitor’s firm to recover damages, claiming that A acted as an agent of the firm, and therefore the firm should be held vicariously liable for A’s wrongful acts.

2. Issues in the Case

1. Whether A, the managing clerk, was acting within the scope of his authority as an agent of the solicitor’s firm when he misused X’s property documents.
2. Whether the solicitor’s firm is vicariously liable for the fraudulent or unauthorized acts committed by its employee (A).
3. Whether A’s act can be considered as done in the course of employment or was it a personal, independent act beyond his official duties.
4. Whether X is entitled to recover damages from the solicitor’s firm for the loss caused by the wrongful act of A.

3. Legal Principles Covered to Support Case Proceedings and Judgement

Relevant Provisions – Indian Contract Act, 1872

1. Section 182 – Definition of Agent and Principal:
   An agent is a person employed to do any act for another or to represent another in dealings with third persons.
   A principal is the person for whom such act is done.
2. Section 238 – Effect on Principal 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 themselves.
3. Section 226 – 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 as if the contracts had been made and acts done by the principal in person.
4. Section 237 – Liability of Principal Inducing Belief that Agent’s Acts are Authorized:
   When a person, by words or conduct, induces a third person to believe that acts of another person are within the scope of his authority, he is bound by such acts, even if they were not authorized.

Supporting Case Laws

1. Lloyd v. Grace, Smith & Co. (1912) AC 716 (HL):
   • Facts: A widow entrusted her title deeds to the managing clerk of a firm of solicitors to prepare a conveyance. The clerk fraudulently got the property transferred to himself and sold it.
   • Held: The House of Lords held that the firm was liable for the fraud of the managing clerk, as the wrongful acts were committed in the course of his employment and within the scope of his apparent authority.
   • Principle: A principal is vicariously liable for the fraud or misrepresentation committed by an agent acting within the scope of his employment, even if the act was done for the agent’s own benefit.
2. State Bank of India v. Shyama Devi (1978) AIR 1263 (SC):
   • The Supreme Court held that if an employee of a bank commits a fraud outside the scope of employment, the bank is not liable.
   • However, if the fraud occurs within the apparent authority of the employee’s duties, the employer is liable.
3. Kumar Krishna v. Benares Bank Ltd. (1917) ILR 39 All 646:
   • A bank was held liable for a manager’s fraudulent act since the fraud was committed in the course of his employment, and the manager was acting in the apparent capacity of an agent of the bank.

Legal Analysis

• A was authorized by the solicitor’s firm to transact conveyancing business, which includes handling documents and preparing sale deeds.
• When X delivered the property documents, it was done in reliance on A’s apparent authority as an employee of the firm.
• The wrongful dealing by A, though fraudulent and for his own gain, was committed in the course of his employment and connected to the kind of work he was authorized to do.
• Under Section 238, the firm is responsible for the fraud committed by its agent during the course of employment.
• Therefore, even though A acted dishonestly, his position as managing clerk enabled him to commit the fraud, and the client’s trust arose from the firm’s representation.
• The principle of vicarious liability applies — the firm is bound by acts done by its employee within the scope of apparent authority.

4. Possible Judgement

• The solicitor’s firm is liable for the wrongful acts of its managing clerk, A, because:
  • A was acting within the scope of his employment, i.e., in handling conveyancing documents.
  • The client, X, had no reason to doubt A’s authority, as he was a managing clerk entrusted by the firm to deal with such matters.
  • The fraud was committed in the course of employment, even though A acted for his own benefit.
• Therefore, following the precedent in Lloyd v. Grace, Smith & Co. (1912), the firm must compensate X for the loss suffered due to A’s fraudulent conduct.

Judgement:

• Held: The solicitor’s firm is liable for the fraud committed by A, the managing clerk.
• Reason: The wrongful act was committed in the course of employment and within the scope of apparent authority entrusted to A.
• Legal Basis: Sections 182, 226, 237, and 238 of the Indian Contract Act, 1872.
• Outcome: The firm must indemnify X for the loss suffered due to A’s misuse of documents.

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