1. Suit for damages for breach of contract for sale of goods — dispute over whether the buyer acted for itself or as an agent for a disclosed principal. (Para 1 , 2 )
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1961 Supreme(SC) 342
SUPREME COURT OF INDIA
18th October, 1961.
B.P. SINHA, C.J.I., P.B. GAJENDRAGADKAR AND RAGHUBAR DAYAL, JJ.
Radhakrishna Sivadutta Rai and others. Appellants
Versus
Tayeballi Dawoodbhai, Respondent.
Civil Appeal No. 212 of 1959.
Advocates appeared
Mr. G. S. Pathak, Senior Advocate, (Mr. Naunit Lal, Advocate, with him), for Appellants; Mr. A. V. Viswanatha Sastri, Senior Advocate (M/s. S. N. Andley, Rameshwar Nath and P. L. Vohra, Advocates of M/s. Rajinder Narain and Co., with him), for Respondent.
Important Points
An agent acting for a disclosed principal, as evidenced by consistent bought and sold notes using the phrase "on account of," cannot personally enforce the contract under Section 230 of the Contract Act, regardless of subsequent correspondence using first-person pronouns.
Subject
Civil Law - Contract Law
Act Referred
Headnote
(A) Indian Contract Act, 1872 - Section 230 - Agency - Disclosed Principal - Suit for damages for breach of contract - Where bought and sold notes issued by brokers clearly indicate that the agent is acting on account of a disclosed principal, the agent is not the contracting party and cannot personally enforce the contract. (Paras 13, 18)
(B) Mercantile Custom - Bought and Sold Notes - If bought and sold notes issued by brokers are consistent and do not contain material variations, they constitute the binding terms of the contract between the parties. (Paras 11, 12)
(C) Construction of Documents - Use of words "on account of" or "A/c" in a contract note is a strong indication that the agent is binding the principal and not themselves. (Para 14)
(D) Subsequent Correspondence - The use of pronouns such as "we" or "you" in letters exchanged after the execution of the contract does not override the clear disclosure of the principal in the primary contract documents, as such correspondence is presumed to be consistent with the original terms. (Para 18)
Facts of the case:
A suit was filed for recovery of damages for breach of a contract for the sale of goods. The defendant pleaded that the plaintiff had acted as an agent for a disclosed principal and thus lacked the standing to sue. The contract was evidenced by bought and sold notes issued by brokers which specifically mentioned the plaintiff was acting on account of a disclosed principal. The plaintiff argued that this reference was a mistake and that subsequent correspondence using first-person pronouns indicated the plaintiff was the contracting party.
Findings of Court:
The court found that the reference to the principal in the notes was not a mistake. Following mercantile usage, the consistent bought and sold notes constituted the contract. The subsequent letters did not alter the agency relationship established in the notes.
Issues: Whether the plaintiff entered into the contract on its own account or as an agent for a disclosed principal, and whether subsequent correspondence using "we" and "you" could be construed as the agent contracting personally.
Ratio Decidendi: Consistent bought and sold notes are binding under mercantile custom. The phrase "on account of" signifies that the agent is binding the principal. Pursuant to Section 230 of the Contract Act, an agent for a disclosed principal cannot personally enforce the contract. Subsequent correspondence is presumed consistent with the primary contract documents and does not alter the status of the agent.
Result: Appeal dismissed.
(B) Mercantile Custom - Bought and Sold Notes - If bought and sold notes issued by brokers are consistent and do not contain material variations, they constitute the binding terms of the contract between the parties. (Paras 11, 12)
(C) Construction of Documents - Use of words "on account of" or "A/c" in a contract note is a strong indication that the agent is binding the principal and not themselves. (Para 14)
(D) Subsequent Correspondence - The use of pronouns such as "we" or "you" in letters exchanged after the execution of the contract does not override the clear disclosure of the principal in the primary contract documents, as such correspondence is presumed to be consistent with the original terms. (Para 18)
Facts of the case:
A suit was filed for recovery of damages for breach of a contract for the sale of goods. The defendant pleaded that the plaintiff had acted as an agent for a disclosed principal and thus lacked the standing to sue. The contract was evidenced by bought and sold notes issued by brokers which specifically mentioned the plaintiff was acting on account of a disclosed principal. The plaintiff argued that this reference was a mistake and that subsequent correspondence using first-person pronouns indicated the plaintiff was the contracting party.
Findings of Court:
The court found that the reference to the principal in the notes was not a mistake. Following mercantile usage, the consistent bought and sold notes constituted the contract. The subsequent letters did not alter the agency relationship established in the notes.
Issues: Whether the plaintiff entered into the contract on its own account or as an agent for a disclosed principal, and whether subsequent correspondence using "we" and "you" could be construed as the agent contracting personally.
Ratio Decidendi: Consistent bought and sold notes are binding under mercantile custom. The phrase "on account of" signifies that the agent is binding the principal. Pursuant to Section 230 of the Contract Act, an agent for a disclosed principal cannot personally enforce the contract. Subsequent correspondence is presumed consistent with the primary contract documents and does not alter the status of the agent.
Result: Appeal dismissed.
Legal Category Hierarchy
Advocates:
A.V.VISHWANATHA SASTRI, G.S.PATHAK, NAUNIT LAL, P.L.VOHRA, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY`
A.V.VISHWANATHA SASTRI, G.S.PATHAK, NAUNIT LAL, P.L.VOHRA, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY`
Table of Contents
2. Whether the contract was entered into by the buyer on its own account or as an agent for a disclosed principal based on broker notes and correspondence. (Para 2 , 4 , 5 , 15 )
3. Consistent broker notes mentioning a principal are binding; subsequent correspondence using general terms does not override the clear disclosure of a principal in the primary contract documents. (Para 8 , 9 , 11 , 12 , 13 , 14 , 16 , 17 , 18 )
4. An agent cannot personally enforce a contract entered into on behalf of a disclosed principal unless a contract to the contrary exists under Section 230, Indian Contract Act. (Para 13 , 16 , 18 , 19 )
5. Appeal dismissed; parties to bear their own costs. (Para 20 )
6. What is the legal effect of bought and sold notes in mercantile contracts?
If bought and sold notes issued by brokers are consistent and without material variation, they are held to constitute a binding contract between the parties according to established mercantile usage. (Para 11 , 12 )
7. Can an agent personally sue on a contract made for a disclosed principal?
No, under Section 230 of the Indian Contract Act, an agent cannot personally enforce contracts entered into on behalf of a disclosed principal unless there is a contract to the contrary. (Para 13 , 16 , 19 )
8. Does the use of general terms like we or you in subsequent correspondence override the disclosure of a principal in primary contract notes?
No, if the primary contract notes unequivocally indicate the agent is acting for a disclosed principal, subsequent general correspondence does not alter this status or create personal liability for the agent. (Para 15 , 18 )
Judgment
GAJENDRAGADKAR, J. : This appeal by a certificate granted by the Calcutta High Court arises out of a suit filed by the three appellants against the respondent to recover Rs. 83,640/-. The three appellants are respectively the Firm Radhakishan Shivdutt Rai which carries on business at Banaras and Ramkumar Lal for himself and as karta of his joint family as well as Madan Gopal for himself and as karta of his joint family, the latter two being the partners in the first-mentioned Firm Radhakishan Shivdutt Rai; for convenience we will refer to the partnership firm hereafter as the appellant. The respondent Tayabali Dawoodbhai is a partnership firm which carries on business at Calcutta. The appellant s case was that the appellant and the respondent had entered into a contract in the first instance on December 18, 1950 through brokers named T. N. Mehrotra & Co., Calcutta. This contract was later confirmed by two letters written respectively on January 3 and 15, 1951 by the appellant to the respondent and replied to by the respondent. By this contract the respondent agreed to sell 1000 bales of Banaras Hemp particulars of which were set out in the plaint. According to the appellant, by letter written on March 14, 1951, the appellant in part performance of the said contract accepted delivery of 110 bales of Banaras Hemp No. 1 and 50 bales of Banaras Hemp No. 2; this delivery was made by the respondent to L. N. Poddar and Co., who acted as the agent of the appellant and paid the price of the said 160 bales. In this transaction the respondent realised Rs. 3,840 from the said L. N. Poddar, and Co., in excess of the actual price of the goods delivered to the said company. In spite of the repeated demands made by the appellant the respondent failed to deliver the balance of the goods contracted for and thus committed breach of the contract. That is how the appellant claimed Rs. 79,800 as difference between the market rate on March 31, 1951 and the contract rate of the balance deliverable under the contract in suit. This amount was claimed as damages for the breach of contract. In addition an amount of Rs. 3,840 was claimed as having been paid in excess of the value of 160 bales delivered to L. N. Poddar and Co. on behalf of the appellant.
2. This claim was resisted by the respondent on several grounds. The principal contention urged by the respondent, however, was that in relation to the contract in suit the appellant had acted as agent for its disclosed principal Messrs. Khaitan and Sons Ltd., and as such it was not entitled to bring the present suit. The respondent further alleged that the said disclosed principal Messrs. Khaitan & Sons had settled all their rights and claims under the suit contract with their agent and so the present claim for damages was not maintainable. In regard to the claim for Rs. 3,840 the respondent pleaded that the appellant s case was untrue. Several other pleas were also raised but with the said pleas we are not concerned in the present appeal.
3. Mr. Justice Bose who tried the suit framed twelve issues. On the principal point in controversy between the parties the learned judge found that the appellant had entered into the contract with the respondent on its own account and not on account of the disclosed principal as alleged by the respondent. According to the learned judge the reference to Messrs. Khaitan and Sons Ltd., made in the bought and sold notes on which the respondents plea was based had been inserted by the brokers by mistake or due to some misconception". The learned judge also found that the respondent had committed a breach of the contract as alleged by the appellant. The appellant s case with regard to the excess payment of Rs. 3,840 made by L. N. Poddar & Co. was, however, held not to have been proved. In the result a decree was passed in favour of the appellant for Rs. 79,800 along with interest as stipulated in the decree.
4. Against this decree the respondent preferred an appeal; a
