Problems based on Contract and Solution-10

Indian Contract Act, 1872

TANMOY MUKHERJEE INSTITUTE OF JURIDICAL SCIENCE

Dr. Tanmoy Mukherjee

Advocate

 

Problems based on Contract and Solution-10

Tanmoy Mukherjee

Advocate

Question-A, without B's authority lends B’s money to C, afterwards B accepts interest on the money from C.

Rights of A, B and C?

→These problem is based on the law of Agency, particularly ratification under the Indian Contract Act, 1872, (Section 196-200).

Legal Provisions-

Section 196 -Where Acts are done by one person on behalf of another without authority, the person on whose behalf the acts are done may ratify or disown such acts.

Section 197- Ratification may be expressed or implied.

Section 199 –Ratification relates back to the debt of the original act. (Doctrine of Relation back).

By accepting interest from C, B has impliedly ratify A's unauthorized act.

Rights and liabilities of the parties-

Rights and liabilities of B- (Principal)

→By accepting interest, B ratifies the loan transaction.

→Once ratified, the act of A is treated as if it was done with authority from the beginning.

Rights of B- (i) B can recover the principal amount and Interest directly from C.

(ii) B becomes the creditor of C.

Liability of B- (i) B is bound by the Contract as if he originally authorized A.

(ii) B cannot later deny A's authority after ratification.

Rights and liabilities of C-(Borrower)-

After ratification,

→ C is legally bound to repay the loan amount with interest to B.

Rights of C - (i) C can treat the contract as valid.

(ii) C is discharged if payment is made to B.

Liability of C - (i) Must repay the loan according to the agreed terms.

Rights and liabilities of A- (Agent without Authority)-

Before ratification,

→ A acted without authority and could have been personally liable.

After ratification,

→ A is treated as proper Agent from the beginning.

Rights of A - (i) A is entitled to indemnify from B for lawful acts done on B’s behalf. (Section 222)

Liability of A- (i) A is not personally liable to C after ratification.

(ii) However, if A acted dishonestly or beyond scope of ratification, liability may arise.

Conclusion-

→B's acceptance of interest amounts to implied ratification.

→The Transaction becomes valid retrospectively.

→B can sue C,

C must repay B, and

A is protected as an authorized Agent after ratification.