38. A retailer received the goods from an agent of the firm X and paid the amount to the agent who misappropriated it. Discuss the liability of the agent and the firm X.

1. Facts of the Case

A retailer purchased certain goods from an agent who represented Firm X. The retailer made the payment for the goods directly to the agent, believing that the agent was authorized to receive payments on behalf of the firm.
However, the agent misappropriated the amount and did not remit it to the firm. Later, the firm demanded payment again from the retailer, claiming that they had not received the money.
The retailer contends that he has already made the payment to the authorized agent, and therefore, he should not be held liable again. The question arises as to who is liable — the agent or the firm X, and whether the payment made to the agent discharges the retailer’s liability.

2. Issues in the Case

1. Whether the agent of Firm X had the authority to receive payment from the retailer?
2. Whether payment made to the agent can be considered as valid payment to the principal (Firm X) under the Indian Contract Act, 1872?
3. Whether Firm X is liable for the agent’s misappropriation of funds received from the retailer?
4. Whether the retailer can be compelled to make the payment again to Firm X?

3. Legal Principles Covered to Support Case Proceedings and Judgements

Relevant Legal Provisions:

• Section 182 – Indian Contract Act, 1872 (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. The person for whom such act is done, or who is so represented, is called the ‘principal’.
• Section 185 – Consideration not necessary:
  No consideration is necessary to create an agency. The relationship depends on authority and consent.
• Section 226 – Enforcement and Consequences of Agent’s Acts:
  Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been made and the acts done by the principal in person.
• Section 237 – Liability of Principal for Acts Ostensibly Within Authority:
  When an agent has acted in a manner that appears to be within his authority, and a third person has in good faith dealt with him, the principal is bound by such acts, even if the agent exceeds his authority.
• Section 238 – 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 by the principals.

Legal Principles Applied:

1. When a principal authorizes an agent to act or represent him in business dealings, any transaction done by the agent within the scope of his apparent authority binds the principal.
2. Payment made to an authorized agent is considered as payment made to the principal (Section 226 and 237).
3. If the agent misappropriates the amount after receiving it within his authority, the loss falls upon the principal, not the third party who made payment in good faith.
4. The principal can, however, recover the amount from the agent, as it is a breach of fiduciary duty and misappropriation of funds.

Case Laws Supporting the Principle:

1. Ireland v. Livingston (1872) LR 5 HL 395:
   It was held that a principal is bound by acts done by his agent within the apparent scope of authority.
2. Keighley, Maxsted & Co. v. Durant (1901) AC 240:
   The House of Lords held that a principal is liable for the acts of an agent done within his authority.
3. Lloyd v. Grace, Smith & Co. (1912) AC 716:
   A firm was held liable for the fraudulent acts of its agent committed in the course of his employment.
4. Indian Case: Irrawaddy Flotilla Co. v. Bugwandas (1891) 18 Cal 620:
   The Court observed that a principal is bound by acts done by his agent within the authority, whether actual or apparent.

4. Possible Judgement

In this case, the retailer paid the amount to the agent of Firm X, who appeared to have authority to receive payments on behalf of the firm.
Even though the agent later misappropriated the amount, the retailer made the payment in good faith and within the apparent authority of the agent. Therefore, the payment is valid, and the retailer’s liability to the firm is discharged.

However, since the agent breached his duty and misappropriated the funds, the agent is personally liable to the firm for the amount received.
The firm cannot recover the money again from the retailer, but it can take legal action against the agent for embezzlement or breach of trust.

Judgement:

• The agent is personally liable to the firm for the misappropriated amount.
• The firm X, being the principal, is bound by the payment made to its authorized agent and cannot demand the same payment again from the retailer.
• The retailer’s liability stands discharged, as he acted in good faith and made payment to the person who appeared to have proper authority.

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