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Section 227: Principal how far bound, when agent exceeds authority

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1872
Section 226 All 266 Sections of Indian Contract Act Section 228

Legal Commentary & Landmark Judgments: Section 227

Section 227 articulates the doctrine of severability in agency law, providing that when an agent exceeds his actual authority, so much only of the transaction as is within his authority binds the principal, provided the authorized and unauthorized portions are distinct and separable.

  • Doctrine of Severability: Requires clear, objective, and commercial divisibility between obligations authorized by the principal and those unauthorized commitments tacked on by the agent.
  • Enforceability of Authorized Tranche: The principal remains fully bound to perform, and is entitled to enforce, the authorized portion of the contract against the third party without invalidating the entire agreement.
  • Agent's Direct Exposure for Excess: The agent remains exclusively liable to the third party for breach of warranty of authority under Section 235 with respect to the excised, unauthorized portion.
Key Landmark Precedents:
  • Agha Mir Ahmad Shah v. Mudassir Shah AIR 1944 PC 105: The Privy Council held that where a power of attorney authorized management and leasing of properties, an unauthorized clause purporting to sell the property was legally separable and void against the principal, while valid leases remained binding.
  • Gopal Das v. Devi Das AIR 1935 Lah 651: The Lahore High Court ruled that where an agent authorized to purchase 500 maunds of grain contracts for 1,000 maunds from a merchant, the contract is severable and binds the principal strictly to the extent of 500 maunds.
  • State of Uttar Pradesh v. Murari Lal & Bros (1971) 2 SCC 449: The Supreme Court recognized the severability principle in government agency, holding that commitments exceeding statutory authority are severed, leaving only valid authorized covenants enforceable.
Courtroom Practice & Strategic Litigation Guidance:

In litigation where an agent exceeded quantity, price limits, or transaction parameters, plead Section 227 to bifurcate the contract. Tender performance strictly for the authorized portion while issuing a formal disclaimer of the unauthorized surplus to avoid deemed ratification.

Section 226 All 266 Sections of Indian Contract Act Section 228