Generally a principal is liable for the acts of his agent towards third parties under the following circumstances-
1. Contracts entered into through agent:- According to Section 226 "the contracts entered into through an agent, and obligations arising from acts clone by an agent, may be enforced in the same manner and will have the same legal consequences as if the commas had been entered into and the acts done by the principal in person". For Example-:
(a) A buys goods from B, knowing that he is an agent for their sale, but not knowing who is. the principal. B's principal is the person entitled to claim from A the price of goods, and A cannot, in a suit by the principal, set off against that claim a debt due to himself from B.
(b) A being B's agent, with authority to receive money on his behalf, receives from C a sum of money due to B. C is discharged of his obligation to pay the sum in question to B.
2. Acts done by the agent in excess of his authority:- The law relating to this may be divided into two heads
I. According to S. 227 “ When an agent does more than he is authorised to do, and when the part of what he does, which is within his authority can be separated from the part which is beyond his authority, so much only of what he does as is within his authority, is binding as between him and his principal”. For Example- A being the owner of a ship and cargo, authories, B to procure an insurance for 4,000 rupees on the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum on the cargo. A is bound to pay the premium of the policy on the ship but not the premium for the policy on the cargo.
II. According to S. 228 when an agent does more than he is authorised to do and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognize the transaction, For Example- A authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of 6000 rupees. A may repudiate the whole transaction.
3. Notice to agent is notice to the principal- According to Section 229 "any notice given to or information obtained by the agent provided it be given or obtained in the course of the business transacted by him for the principal, shall; as between the principal and third parties, have the same legal consequences as if it had been given to or obtained by the principal".
(a) A is employed by B to buy from C certain goods, of which C is the apparent owner, and buys them accordingly. In the course of treaty for the sale, A learns that goods really belonged to D, but B is ignorant of that fact. B -is not entitled to set-off a debt owing to' him from C against the price of the goods.
(b) A is employed by B to buy from C goods of which C is the apparent owner. A was, before he was so employed, a servant of C, and then learnt that the goods really belonged to D, but B is ignorant of that fact. Inspite of the knowledge of the agent, B' may set-off against the price' of the goods a debt owing to him from C.
4. Principal is liable by estoppel- For this point please see Page No. 59 under the heading.” Estoppel or By Holding out.”
5. Liability of principal for agent’s fraud or misrepresentation- According to S. 238 “ misrepresentations made, or frauds committed by agents. Acting in the course of their business for their principals, have the same effects on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principal, but misrepresentations made or frauds committed by agents in matters which do not fall within their authority, do not affect principals.
A, being B’s agent for the sale of goods, induces C to buy them b a misrepresentation, which he was not authorized by B to make. The contract is voidable, as between B and C at the option of C.
A, the caption of B’s ship, signs bills of lading with out having received on board the goods mentioned therein. The bills of lading are void as between B and the pretended consignor.
Courtesy:- Legal Point Foundation