Drafting, Pleadings and Appearances · Drafting of Commercial Contracts

Agent's Contracts and Their Enforcement under Section 226

Updated 11 October 2026 · Fact-checked

Section 226 says a contract made through an agent, and obligations from the agent's acts, are enforced with the same legal consequences as if the principal had acted in person. To solve a question, check authority, check disclosure of the principal, then apply sections 230, 231 and 237 to fix who can sue and who is liable.

Understand Agent's Contracts and Their Enforcement (Section 226)

An agent is a person who acts for another, called the principal. The law treats the agent as the principal's hands. So when an agent makes a contract within authority, the contract is the principal's contract.

Section 226 states this link. Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and have the same legal consequences, as if the principal had made the contract or done the act in person. Illustration (b) shows it: if A is B's agent to receive money and C pays A, C is discharged of the debt to B.

The section also works against the third party. Illustration (a): A buys goods from B, knowing B is an agent but not who the principal is. The principal is the person entitled to claim the price from A. A cannot set off a debt that B personally owes A against the principal's claim. Here A knows there is an agent but does not know the principal's name. That is the situation in which section 230(2) presumes a contract to the contrary. Do not confuse it with section 231, which applies only where the third party does not know or suspect any agency at all.

Section 226 is the base rule. Other sections refine it. Section 230 says that, absent a contract to the contrary, the agent cannot personally enforce the contract or be bound by it. A contract to the contrary is presumed where the agent contracts for a merchant resident abroad, where the agent does not disclose the name of his principal, or where the principal, though disclosed, cannot be sued. Section 231 deals with the case where the third party neither knows nor has reason to suspect that the person is an agent.

Section 227 and section 237 deal with an agent who exceeds authority, but they answer different questions. Under section 227, if the agent does more than authorised and the part within authority can be separated from the excess, only the part within authority is binding as between the agent and the principal. Section 237 deals with the principal's liability to third persons: he is bound by an unauthorised act if his words or conduct induced them to believe it was within the agent's authority.

For drafting, the aim is to make these outcomes clear in writing. A good agency clause names the principal, defines the scope of authority, states who bears liability, and deals with disclosure, indemnity and termination.

Key rules to remember

Section 226: enforcement: Contract through agent = contract by principal in person; Contracts and obligations from the agent's acts are enforced with the same legal consequences as if the principal had acted.
Section 230: agent's personal position: No contract to the contrary → agent cannot sue and is not bound; Contract to the contrary is presumed if: (1) sale or purchase of goods for a merchant resident abroad; (2) the agent does not disclose the name of his principal (the third party may know there is an agent but not who the principal is); (3) principal, though disclosed, cannot be sued.
Section 231: agency unknown to the third party: Principal may require performance; third party has against principal the same rights as against the agent; Applies where the third party neither knows nor has reason to suspect the person is an agent. If the principal discloses himself before the contract is completed, the third party may refuse if he would not have contracted had he known.
Section 227: excess of authority: Separable acts: only the part within authority is binding as between agent and principal; Illustration: authority to insure the ship for ₹4,000; the agent also takes a ₹4,000 policy on the cargo. The principal must pay the premium for the ship policy, not for the cargo policy. The principal's liability to third parties for unauthorised acts is dealt with under section 237.
Section 237: holding out: Unauthorised act binds principal if his words or conduct induced the third party to believe it was authorised; Applies even where the agent ignored private instructions.
Section 238: misrepresentation or fraud by agent: In the course of business: same effect as if by principal; outside authority: no effect on principal; The contract is voidable at the option of the third party.
Section 222: indemnity to agent: Employer indemnifies agent against consequences of all lawful acts done within authority; Draft an express indemnity clause to match.

How to solve Agent's Contracts and Their Enforcement (Section 226) questions

Use this order for any problem or drafting question on agent's contracts. Write provision, facts, conclusion.

1Identify the principal, agent and third party, and what contract was made.
2Decide whether the agent had authority: express, implied, or by the principal's words or conduct (section 237).
3If the act was within authority, apply section 226: the principal can enforce and is bound as if he had acted himself.
4Check disclosure. Was the agent known as an agent? Was the principal named? Apply section 230 for the agent's own right or liability, and section 231 if the third party neither knew nor suspected the agency.
5If the agent exceeded authority, apply section 227 for the position between agent and principal (separable parts) and section 237 for the principal's liability to the third party (holding out). For misrepresentation or fraud, apply section 238.
6State the conclusion on who can sue whom, and who is liable.
7If asked to draft, give clauses on parties, scope of authority, limits, disclosure, liability, indemnity (section 222), duty of care (section 212), and termination (section 202 where the agent has an interest).

Quickest way: Authority-Disclosure-Liability check

When to use it: Use when time is short and the question asks who can sue or who is liable on a contract made by an agent.

Authority: was the act authorised or held out? If yes, the principal is bound (sections 226, 237).
Disclosure: did the third party know there was an agent? If yes but the principal was not named, section 230(2) presumes a contract that the agent can enforce and is bound by (illustration (a) to section 226 is this case). If the third party neither knows nor has reason to suspect that the person is an agent, section 231 applies: the principal may require performance, and the third party has the same rights against him as against the agent.
Liability: apply any express clause first, since section 230 starts with 'in the absence of any contract to that effect'.
Write one line of conclusion per party.

Common mistakes in Agent's Contracts and Their Enforcement (Section 226)

Saying the agent is always personally liable on the contract.
Students forget the default rule in section 230.
Fix: State that, absent a contrary contract, the agent is not bound and cannot enforce, then check the three presumed exceptions.
Listing only section 226 and ignoring sections 230, 231 and 237.
The topic title names one section.
Fix: Treat section 226 as the base rule and add the sections that decide who is liable and when authority is lacking.
Binding the principal for an act that exceeds authority without checking section 237.
Students assume excess of authority always frees the principal.
Fix: Check whether the principal's words or conduct led the third party to believe the act was authorised. If so, he is bound.
Treating an excess of authority as all-or-nothing.
Section 227 is overlooked.
Fix: As between agent and principal, if the authorised part can be separated from the excess, only the authorised part is binding on the principal. Test the third party's claim against the principal separately under section 237.
Drafting an agency clause with vague authority such as 'to do all things necessary'.
Students copy generic wording.
Fix: List the acts the agent may do, set monetary or other limits, and say what needs prior written approval.
Omitting disclosure and liability wording in the draft.
Focus stays on scope of work.
Fix: State whether the agent acts as disclosed agent, name the principal, and say whether the agent has any personal liability.

Worked examples

Example 1

Meera Traders appoints Ravi as agent to sell its stock of tea to buyers. Ravi, acting within authority, sells tea to Kapoor & Co. for ₹5,00,000, naming Meera Traders as principal. Kapoor & Co. owes Ravi ₹50,000 personally and claims to deduct it from the price. Can Meera Traders recover the full price, and is Ravi liable?

Show the solution

Provision: section 226 makes a contract through an agent the principal's own, enforceable as if the principal had made it in person. Illustration (a) to section 226 shows that a buyer cannot set off a debt the agent personally owes him against the principal's claim for the price. Here Meera Traders is named, so its right to the full price follows directly from section 226, and the same no-set-off rule applies.
Facts: Ravi acted within authority and the principal was disclosed. There is no contract to the contrary and none of the three presumed cases under section 230 applies.
Application: the contract is Meera Traders' contract, so it may enforce it. Kapoor & Co.'s ₹50,000 claim is against Ravi personally, not against Meera Traders, so, as in illustration (a) to section 226, it gives no set-off against the principal's claim for the price.
Under section 230, Ravi cannot personally enforce the contract and is not personally bound.

Answer: Meera Traders can recover the full ₹5,00,000. Kapoor & Co. cannot deduct its ₹50,000 claim against Ravi from the price. Ravi is not personally bound and cannot sue on the contract.

Example 2

Draft the key clauses of an agency agreement under which Sharma Exports Ltd. appoints Iyer as its agent to buy goods, with Iyer to be indemnified, and state why each clause is needed.

Show the solution

Appointment and authority: 'The Principal appoints the Agent to purchase [goods] in the Principal's name, up to ₹10,00,000 per transaction.' Purpose: fixes authority so that acts beyond it are easy to identify (section 227 between agent and principal; section 237 for third parties).
Limits: 'Any purchase above this limit needs the Principal's prior written approval.' Purpose: makes lack of authority clear to third parties.
Disclosure and liability: 'The Agent shall disclose that he acts for the Principal, naming Sharma Exports Ltd. The Agent shall not be personally liable on contracts so made.' Purpose: avoids the section 230 presumptions against the agent.
Duty of care: 'The Agent shall act with reasonable skill and diligence and compensate the Principal for direct loss from his neglect or misconduct.' Purpose: tracks section 212, which covers direct, not remote, consequences.
Indemnity: 'The Principal shall indemnify the Agent against the consequences of all lawful acts done within this authority.' Purpose: matches section 222.
Termination: state notice period and effect on pending contracts. Purpose: certainty on when authority ends.

Answer: The agreement should contain appointment and authority, limits, disclosure and no-personal-liability, duty of care, indemnity and termination clauses, each linked to the sections above so that contracts made by Iyer are enforced as the principal's own under section 226.

Exam tips

Open with the rule in section 226, then apply sections 230, 231, 227 and 237 to the facts.
Quote the section 230 presumptions exactly; they are three and easy to list.
In drafting questions, give clause headings with sample wording and a one-line reason for each.
Always end with a clear conclusion on who can sue and who is liable.
Note that an express contract can change the section 230 default, so refer to the agreement's terms first.

Practice questions from Drafting of Commercial Contracts

Agent's Contracts and Their Enforcement (Section 226) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CSEETContingent Contracts: Meaning and Enforcement (Section 32)

Agent's Contracts and Their Enforcement (Section 226): frequently asked questions

What does section 226 of the Indian Contract Act say?

It says contracts entered into through an agent, and obligations from the agent's acts, may be enforced in the same manner and have the same legal consequences as if the principal had acted in person. So the principal gets the rights and bears the duties of a contract made within authority.

Can an agent sue or be sued on a contract made for the principal?

Under section 230, not by default. Absent a contract to the contrary, the agent cannot personally enforce the contract and is not bound by it. A contrary contract is presumed where the agent acts for a foreign merchant in a goods sale or purchase, does not disclose the principal's name, or the principal cannot be sued.

What if the agent goes beyond his authority?

Under section 227, if the part within authority can be separated from the excess, only that part is binding as between the agent and the principal. For example, the principal pays the premium on the ship policy but not on the extra cargo policy. Whether the principal is bound to a third party is tested under section 237: he is bound if his words or conduct made the third party believe the act was authorised.

What should an agency clause in a commercial contract include?

It should name the parties, define the scope and limits of authority, state the disclosure and liability position, set the agent's duty of care, give an indemnity and cover termination. Clear wording avoids disputes over who is bound.