1. Facts of the Case
- ‘J’, the owner of a car, wanted to sell his vehicle.
- He appointed ‘P’ as his agent for the purpose of selling the car at a fixed price of Rs. 50,000/-.
- ‘P’, acting as the agent, sold the car to ‘A’ for Rs. 40,000/-, which was below the authorized price.
- ‘A’ purchased the car in good faith, without knowledge that ‘P’ had no authority to sell below Rs. 50,000/-.
- ‘P’ then misappropriated the money, failing to remit the sale proceeds to ‘J’.
- Upon learning this, ‘J’ sued ‘A’ to recover possession of the car, claiming that the sale was unauthorized and thus void.
- The issue arises whether ‘J’ can recover the car from ‘A’ or whether ‘A’ obtained a good title despite ‘P’s breach of instructions.
2. Issues in the Case
- Whether ‘P’, as an agent, had the authority to sell the car for a price lower than the one fixed (Rs. 50,000/-) by the principal ‘J’.
- Whether ‘A’, a bona fide purchaser for value without notice, obtained a good title to the car.
- Whether ‘J’ can recover the car from ‘A’, even though the sale was within the apparent scope of ‘P’s authority.
- Whether the principal is bound by an agent’s act that is within apparent or ostensible authority but beyond actual authority.
3. Legal Principles Covered to Support Case Proceedings and Judgements
Relevant Provisions of the Indian Contract Act, 1872
- Section 226 – Enforcement and consequences of agent’s contracts:
- Contracts entered into by an agent on behalf of the principal have the same legal effect as if made by the principal himself.
- Therefore, if an agent acts within his authority, the principal is bound by the contract.
- Section 237 – Liability of principal for acts of agent done without authority:
- When an agent has done acts on behalf of the principal without authority, but the principal by his conduct induces third parties to believe that such acts are authorized, the principal is bound by such acts.
- This section protects bona fide third parties who deal with the agent in good faith, believing in his authority.
- Section 238 – Effect on agreement by misrepresentation or fraud by agent:
- Misrepresentation or fraud by the agent within the scope of his apparent authority affects the principal as if it were made by the principal himself.
- Doctrine of Apparent (Ostensible) Authority:
- When the principal has clothed the agent with apparent authority, a third party dealing in good faith and without knowledge of any restriction is protected.
- The principal cannot deny liability on the ground that the agent exceeded actual authority if the act was within apparent authority.
- Transfer of Property Act, 1882 – Section 27 (Exception to “Nemo dat quod non habet”):
- Normally, no one can transfer a better title than he himself possesses.
- But if the owner has authorized an agent to sell goods and the buyer buys them in good faith without notice of any limitation on the agent’s authority, the buyer obtains a good title.
Supporting Case Laws
- Pickering v. Busk (1812) 15 East 38:
- It was held that if a principal allows an agent to appear as owner or as having full authority to sell, and a third party buys in good faith, the buyer obtains good title.
- Watteau v. Fenwick (1893) 1 QB 346:
- A principal was held liable for acts of the agent within the apparent scope of authority, even if the agent had violated instructions.
- Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd. (1964) 2 QB 480:
- Established that a principal is bound by an agent’s acts within apparent authority if the third party acts in good faith.
Legal Analysis
- In this case, ‘P’ was authorized by ‘J’ to sell the car, though at a specified price of Rs. 50,000/-.
- ‘P’ sold it for Rs. 40,000/-, an act beyond actual authority but within apparent authority — since he was empowered to sell, and the buyer ‘A’ had no reason to suspect any limitation.
- ‘A’ purchased in good faith, paying full value without knowledge of the price restriction.
- Hence, the sale is valid as between ‘A’ and ‘J’, and ‘A’ obtains a good title to the car.
- The principal’s remedy lies against the agent ‘P’ for breach of instructions and misappropriation of sale proceeds, not against ‘A’.
- Therefore, ‘J’ cannot recover the car from ‘A’.
4. Possible Judgement
- The sale by ‘P’ to ‘A’ was unauthorized in price but within apparent authority.
- Since ‘A’ was a bona fide purchaser for value without notice, he obtained a valid title to the car under Section 237 of the Indian Contract Act, 1872 and the principle of apparent authority.
- The owner ‘J’, having entrusted possession and authority to ‘P’, created the appearance of full authority and must bear the loss caused by his agent.
- The loss should fall upon the principal (J) rather than the innocent buyer (A).
- Therefore, the suit by ‘J’ against ‘A’ for recovery of the car will fail.
- However, ‘J’ can sue ‘P’ for recovery of Rs. 40,000/- and damages for breach of fiduciary duty.
Judgement:
- Held: ‘J’ cannot recover the car from ‘A’.
- Reason: The sale was made by an agent acting within his apparent authority, and the buyer acted in good faith.
- Legal Basis: Sections 226, 237, and 238 of the Indian Contract Act, 1872 and Section 27 of the Transfer of Property Act, 1882.
- Remedy: ‘J’s remedy is against the agent ‘P’ for breach of duty and misappropriation.
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