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Section 232: Performance of contract with agent supposed to be principal

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1872
Section 231 All 266 Sections of Indian Contract Act Section 233

Legal Commentary & Landmark Judgments: Section 232

Section 232 shields third parties who contracted with an agent genuinely believing him to be the principal, providing that if the undisclosed principal requires performance, he can obtain it only subject to all rights and obligations subsisting between the agent and the third party.

  • Condition of Bona Fide Ignorance: The third party must have contracted with no knowledge or reasonable grounds to suspect that the ostensible counterparty was merely an agent.
  • Subjectivity to Subsisting Equities (Cum Onere): The undisclosed principal takes the contract subject to all payments, cash advances, and valid set-offs accrued against the agent prior to disclosure.
  • Preclusion of Double Liability: Prevents a third party from being compelled to pay the principal if he has already discharged the liability to the agent or adjusted mutual debts in good faith.
Key Landmark Precedents:
  • Cooke & Sons v. Eshelby (1887) 12 App Cas 271: The House of Lords ruled that a buyer can set off a debt due from a broker against the undisclosed principal only if the buyer genuinely believed the broker was selling on his own account, and not if he knew the broker sold sometimes for himself and sometimes for clients.
  • Borries v. Imperial Ottoman Bank (1873) LR 9 CP 38: Affirmed in Indian law: an undisclosed principal who permits his agent to appear as absolute owner cannot defeat a third party's right to set off claims against the agent.
  • Addanki Narayanappa v. Bhaskara Krishtappa AIR 1966 SC 1300: The Supreme Court reiterated the protective equitable principles governing commercial intermediaries and imputed third-party rights.
Courtroom Practice & Strategic Litigation Guidance:

In defending against an undisclosed principal's recovery action, plead Section 232 with certified accounts showing that payments or goods adjustments were made with the agent before notice of the principal's existence, completely discharging liability.

Section 231 All 266 Sections of Indian Contract Act Section 233