Sections 236 and 237 of the Indian Contract Act 1872: False Agent and Liability of Principal
Sections 236 and 237 form part of the law of agency under the Indian Contract Act, 1872. Section 236 deals with a person who contracts in the character of an agent while actually acting on his own account. Section 237 deals with a principal whose words or conduct lead a third person to believe that an unauthorized act of an agent was within the agent's authority.
| Provision | Subject | Basic effect |
|---|---|---|
| Section 236 | Person falsely contracting as agent | A person who purported to contract as an agent but was actually acting on his own account cannot require performance of that contract. |
| Section 237 | Principal inducing belief in agent's authority | A principal may be bound by an unauthorized act where the principal's words or conduct induced the third person to believe that the act was within the agent's authority. |
Section 236: Person falsely contracting as agent not entitled to performance
Statutory text:
236. A person with whom a contract has been entered into in the character of agent, is not entitled to require the performance of it, if he was in reality acting, not as agent, but on his own account.
Meaning and effect of Section 236
Section 236 prevents a person from claiming contractual performance in a capacity different from the one in which the contract was made. Where a person represented himself as acting merely as an agent, but was in fact acting for his own account, he cannot demand performance of that contract for his own benefit.
The provision therefore focuses on the true capacity in which the supposed agent acted. It protects the contractual position of the other party, who agreed to deal with that person as an agent rather than as the real principal or beneficial contracting party.
Key elements of Section 236
For Section 236 to apply, the contract must have been entered into with a person in the character of an agent, and that person must in reality have been acting on his own account. When these conditions exist, the person is not entitled to require performance of the contract.
Section 237: Liability of principal inducing belief that agent's unauthorized acts were authorized
Statutory text:
237. When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent's authority.
Meaning of Section 237
Section 237 addresses apparent or ostensible authority arising from the principal's own words or conduct. An agent may have acted without actual authority, but the principal can nevertheless be bound if the principal created or permitted a reasonable appearance to the third person that the agent had authority to do the act in question.
The important source of the belief under Section 237 is the principal's representation by words or conduct. A private restriction imposed by the principal on the agent may not protect the principal against a third person who was unaware of that restriction where the principal's conduct created the appearance of authority.
Conditions relevant to Section 237
The provision contemplates an act or obligation undertaken by an agent on behalf of a principal without actual authority, a belief by the third person that the act was within the agent's authority, and words or conduct of the principal that induced that belief. Whether these requirements are established depends on the facts and evidence of the particular transaction.
Illustrations under Section 237
Illustration (a): A consigns goods to B for sale and instructs B not to sell below a fixed price. C, who does not know of those private instructions, contracts with B to buy the goods below the reserved price. A is bound by the contract.
Illustration (b): A entrusts B with negotiable instruments endorsed in blank. B sells them to C contrary to A's private orders. The sale is good.
These statutory illustrations show the distinction between a private limitation on an agent's authority and the outward appearance of authority presented to an innocent third party. The legal consequence turns on the circumstances contemplated by Section 237.
Difference between Sections 236 and 237
Section 236 concerns the rights of a person who falsely contracts in the character of an agent while acting for himself. Section 237 concerns the liability of the principal toward a third person where the principal has created a belief that the agent's unauthorized act was authorized. The first provision limits the false agent's right to demand performance; the second may bind the principal because of the principal's own words or conduct.
Related provisions on agency
Sections 236 and 237 should be read with the surrounding provisions of the Indian Contract Act dealing with the effect of contracts made by agents, excess of authority, undisclosed principals, personal liability of agents, pretended agents and misrepresentation or fraud by agents. The related internal links in the sidebar provide the surrounding statutory sequence.
This page provides general legal information and a simplified explanation of the statutory provisions. For an actual dispute, the complete Act, applicable amendments, evidence and relevant judicial decisions should be considered.