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

Neha, an agent, sells goods to Gupta Brothers for her undisclosed principal, Ishaan Exports. Gupta did not know of any agency. Ishaan later sues Gupta for the price. Gupta says that Neha owed him Rs 40,000 under a separate earlier dealing and wants to set that off. Based on Section 231, which proposition best fits the first paragraph of the section?

Gupta may raise the defence. Under Section 231, a party who dealt with an agent not known to be one has against the undisclosed principal the same rights he would have had against the agent if the agent had been the principal, including such a set-off.

  1. AGupta cannot raise any defence against Ishaan, because Ishaan was not a party
  2. BGupta has against Ishaan the same rights he would have had against Neha if Neha had been the principal, so such a defence may be raisedCorrect
  3. CGupta may raise it only if Ishaan consents
  4. DGupta's rights end once Ishaan sues

Explanation

Section 231 gives the other contracting party, as against the principal, the same rights he would have had against the agent if the agent had been principal. Hence the defence available against Neha as principal is available against Ishaan. Option A contradicts that rule.

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