1. Facts of the Case
‘Y’ appoints ‘A’ as his agent to sell certain goods. Acting within the scope of his apparent authority, ‘A’ negotiates the sale of those goods to ‘K’. However, while doing so, ‘A’ makes a false statement (misrepresentation) regarding the goods, which induces ‘K’ to buy them. Importantly, ‘A’ was not authorised by ‘Y’ to make such misrepresentation.
After discovering the truth, ‘K’ wishes to rescind (cancel) the contract, arguing that he was deceived by ‘A’s misrepresentation. The issue is whether the contract can be set aside at ‘K’s option, even though the misrepresentation was made without the knowledge or authority of ‘Y’ (the principal).
2. Issues in the Case
- Whether the principal (‘Y’) is bound by the misrepresentation made by his agent (‘A’) while acting in the course of his employment.
- Whether the contract between ‘Y’ and ‘K’ can be set aside due to the agent’s unauthorised misrepresentation.
- Whether it makes a difference that the misrepresentation was without the knowledge or consent of the principal.
3. Legal Principles Covered
The legal principles are governed by the Indian Contract Act, 1872, particularly the sections relating to agency and misrepresentation:
- 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. - Section 237 – Liability of Principal Inducing Belief that Agent’s Unauthorized Acts Were Authorized
When a person has by his conduct induced third parties to believe that acts done by another person are within the scope of the agent’s authority, he is bound by such acts. - Section 238 – Effect on Agreement of Misrepresentation or Fraud by Agent
Misrepresentations made or frauds committed by agents acting in the course of their business for the principal have the same effect on agreements made by such agents as if the misrepresentations or frauds had been made by the principal himself. - Section 18 – Definition of Misrepresentation
Misrepresentation means a positive assertion in a manner not warranted by the information of the person making it, which, though believed to be true, is false.
Case Laws Supporting the Principle:
- Cornfoot v. Fowke (1840) 6 M&W 358 – Misrepresentation by an agent, even without the principal’s knowledge, can render a contract voidable by the other party.
- Lloyd v. Grace, Smith & Co. (1912 AC 716) – The principal is liable for the fraudulent acts or misrepresentations committed by the agent within the course of employment.
- Udho Dass v. Prem Prakash (1964 AIR 1099 SC) – Indian courts have upheld that principals are bound by misrepresentations made by their agents acting within apparent authority.
4. Possible Judgement
Even though ‘A’ made the misrepresentation without ‘Y’s express authority, he did so while acting in the course of his employment as Y’s agent for the sale of goods. According to Section 238 of the Indian Contract Act, 1872, such misrepresentation has the same legal effect as if it were made by the principal himself.
Therefore, the contract between ‘Y’ and ‘K’ is voidable at the option of ‘K’, since it was induced by misrepresentation made by the agent. ‘K’ may choose either:
- To rescind (cancel) the contract and return the goods, or
- To affirm the contract and claim compensation for any loss sustained because of the misrepresentation.
The court would likely hold that:
- ‘Y’ is bound by the acts of his agent done in the course of employment, even though ‘Y’ did not authorize or know of the misrepresentation.
- The contract is voidable at the option of ‘K’, not void ab initio.
Hence, ‘K’ can set aside the contract if he so chooses, under Section 238 of the Indian Contract Act, 1872.
About lawgnan:
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