Sections 234 and 235 of the Indian Contract Act, 1872: Exclusive Liability and Pretended Agent
Sections 234 and 235 form part of the law of agency under the Indian Contract Act, 1872. Section 234 deals with a contracting party who induces an agent or principal to proceed on the basis that only one of them will be liable. Section 235 deals with compensation where a person falsely represents that he is another person's authorised agent and the alleged principal does not ratify the act.
Section 234 - Consequence of inducing agent or principal to act on belief of exclusive liability
Statutory rule in substance: Where a person contracting with an agent induces the agent to act on the belief that only the principal will be liable, that person cannot later hold the agent liable. Conversely, if that person induces the principal to act on the belief that only the agent will be liable, the principal cannot later be held liable.
Meaning and effect of Section 234
Section 234 prevents a contracting party from changing the basis on which the agent or principal was induced to act. Its focus is the representation or conduct of the person dealing with the agency relationship and the reliance produced by that conduct.
In practical terms, a person who has deliberately led the agent to understand that recourse will be taken only against the principal cannot subsequently reverse that position and seek to impose liability on the agent. The corresponding rule applies where the principal was induced to proceed on the footing that the agent alone would be liable.
Key requirements
The provision requires a contract made with an agent, conduct that induces the relevant belief about exclusive liability, and action by the agent or principal on that belief. Whether those elements are established depends on the contract, communications and surrounding evidence in the particular case.
Section 235 - Liability of pretended agent
Statutory rule in substance: A person who falsely represents himself as the authorised agent of another and thereby induces a third person to deal with him as an agent must compensate that third person for resulting loss or damage if the alleged principal does not ratify the acts.
What is a pretended agent?
For Section 235, a pretended agent is a person who represents that he has authority to act for another when that representation is untrue. Liability arises where the false representation induces the third party to deal with him as an authorised agent and the supposed principal does not ratify what was done.
Nature of liability
The statutory remedy is compensation for loss or damage incurred because the third party dealt with the person on the strength of the false claim of authority. The section therefore protects a third party who has acted upon an untrue representation of agency.
Effect of ratification
Section 235 expressly operates where the alleged employer does not ratify the acts. Ratification is addressed elsewhere in the Act, including Sections 196 to 200, and can affect the legal consequences of an act initially done without authority.
Difference between Sections 234 and 235
Section 234 concerns a genuine agency setting in which the person dealing with an agent induces a belief that either the principal or the agent alone will be liable. Section 235 concerns a different problem: a person falsely claiming authority as an agent. The first provision restricts a later change of position about liability; the second creates a right to compensation for loss caused by a false representation of authority.
This article is a general explanation of the statutory provisions and is not a substitute for advice on the facts of a particular contract or dispute.