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CS Professional · Drafting, Pleadings and Appearances · Commercial Contract Management

Bhavna Exports Ltd. contracted with Chetan Traders through an agent, and Chetan neither knew nor had reason to suspect that the agent was acting for a principal. Before the contract was completed, Bhavna disclosed itself as principal. Chetan can show that had he known the real principal was Bhavna, he would not have contracted. What may Chetan do?

Chetan may refuse to fulfil the contract. Under the Indian Contract Act, 1872, if the principal discloses himself before completion, the other party may refuse performance by showing he would not have contracted had he known the identity of the principal or that the agent was not a principal.

  1. AHe must perform because the principal may require performance in every case
  2. BHe may refuse to fulfil the contractCorrect
  3. CHe may rescind only after restoring all benefits, as nothing has been performed
  4. DHe may sue the agent for indemnity

Explanation

Where the principal discloses himself before the contract is completed, the other party may refuse to fulfil it if he shows he would not have entered into it had he known who the principal was. Chetan can show this, so refusal is allowed. The principal's general right to require performance is subject to this exception.

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