1. Facts of the Case
- A, the principal, directs his agent B to purchase a specific house on his behalf.
- B, acting in the capacity of A’s agent, informs A falsely that the house cannot be bought as it is already sold to someone else.
- In reality, B himself purchases the house, not for A but for his own benefit, thereby deceiving A.
- Later, A discovers B’s fraudulent conduct — that B misrepresented the situation and secretly purchased the house for himself.
- The question arises whether A can compel B to sell or transfer the house to him, given that B acted dishonestly while being A’s agent.
2. Issues in the Case
- Whether B, an agent, by purchasing the property for himself in violation of his duty, has acted fraudulently toward his principal A.
- Whether A has the right to compel B to transfer the house to him, since the property was meant to be bought on A’s behalf.
- Whether B’s conduct amounts to a breach of fiduciary duty under the Indian Contract Act, 1872.
- Whether the agent (B) can retain any benefit or profit arising from such fraudulent conduct.
3. Legal Principles Covered
a) Section 217 – Right of Principal to Benefits Gained by Agent Dealing on His Own Account
“If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances, the principal may claim from the agent any benefit which may have resulted to him from the transaction.”
Explanation:
- An agent must act in good faith and in the best interest of the principal.
- If he acts secretly for his own gain, the principal can demand the property or its profits from him.
- Here, B acted on his own account and deceived A, hence A can claim the house or the profits derived from it.
b) Section 215 – Principal’s Right When Agent Deals on His Own Account
“If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to repudiate the transaction if the agent has dishonestly concealed any material fact or if the dealings have been disadvantageous to him.”
Application:
- Since B concealed the fact that the house was actually available and dishonestly misled A,
- A has the right to repudiate the transaction; and
- B must transfer the property to A, since the transaction was intended for A’s benefit.
c) Section 216 – Principal’s Right to Benefit Gained by Agent
“If an agent, without the knowledge of his principal, deals in the business of the agency on his own account, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.”
Application:
- The law gives A the right to claim the benefit that B obtained — i.e., ownership of the house or its value.
- B’s secret dealing is treated as fraudulent and voidable at the instance of A.
d) Section 88 – Advantage Gained by Fiduciary
“An agent who gains any advantage in dealing on behalf of the principal must account for it to the principal.”
Explanation:
- An agent stands in a fiduciary relationship with his principal.
- Any advantage or gain made by misusing this relationship belongs to the principal, not to the agent.
e) Judicial Precedents
- Keighley, Maxsted & Co. v. Durant (1901) AC 240
- Held: An agent must act strictly within the authority and in good faith. Any act done beyond or against the principal’s interest is voidable by the principal.
- Armstrong v. Jackson (1917) 2 KB 822
- Held: If an agent purchases property for himself that he was directed to purchase for the principal, the principal can claim that property or the profits derived from it.
- Lilley v. Doubleday (1881) 7 QBD 510
- Held: An agent’s secret profit or transaction without disclosure amounts to fraud, and the principal can recover the asset or its benefit.
f) Legal Reasoning
- B was bound to act loyally and in the interest of A, his principal.
- By falsely representing that the property was unavailable and secretly buying it for himself, B breached his fiduciary duty and acted fraudulently.
- As per Sections 215, 216, 217, and 88 of the Indian Contract Act, 1872, A is entitled to:
- Repudiate B’s act;
- Claim the house purchased by B; or
- Recover any profit or benefit that B gained through the transaction.
B cannot retain the property for himself, as it was acquired through a breach of trust and agency duty.
4. Possible Judgement
Findings:
- B, acting as an agent, deceived A and violated the fiduciary duty imposed by law.
- The transaction was carried out without A’s knowledge or consent, and B acted for his own gain.
- Under Sections 215–217 and 88 of the Indian Contract Act, 1872, A has the legal right to claim the property or any benefit derived from it.
- B’s conduct amounts to fraud, and he cannot claim ownership or profit arising from such deceitful conduct.
Judgement:
The court would hold that A is entitled to compel B to transfer the house to him or to account for the profits made from the property.
B’s purchase of the house in his own name while acting as A’s agent constitutes a breach of fiduciary duty and is voidable at the option of A.
Hence, the court directs B to sell and transfer the house to A at the same price for which B purchased it, or to pay compensation for the loss caused by his fraudulent conduct.
About lawgnan:
earn how agency law protects principals from fraudulent acts by agents under the Indian Contract Act, 1872. Discover the significance of Sections 215, 216, 217, and 88, which ensure that agents act in good faith and prevent secret profits or misuse of trust. At Lawgnan.in, you’ll find detailed LLB notes, case summaries, and legal interpretations that simplify complex agency concepts for exams and practice. Stay ahead in your legal studies with clear, concise, and well-structured explanations of key doctrines like fiduciary duty and agency accountability. Visit Lawgnan.in — your complete law learning platform.
