S.N. Katju, J.
1. This is a plaintiffs appeal arising out of a suit for recovery of Rupees 2.034-6-9 from the first defendant through the second defendant
2. The plaintiff firm was carrying on commission agency business in cloth at Kanpur. The first defendant the co-operative Union, Mallawah, district Hardoi (hereinafter called the society) had appointed the second defendant Sri Ram Chandra Pandey as their sales agent. It was stated in the written statement filed by the first defendant that the second defendant was employed in the Co-operative Union Mallawah as a salesman 'on salary or commission' The second defendant purchased cloth worth Rupees 1857 15-3 from the plaintiff on credit for the first defendant and further borrowed Rupees 50 from the plaintiff for defraying the octroi duty and transport charges. Admittedly cloth was purchased from the plaintiff and was duly received by the first defendant. It was further admitted that the first defendant had paid the price of the aforesaid cloth to the second defendant and the second defendant admitted that instead of paying the amount to the plaintiff the said amount was misappropriated by the second defendant with the result that the plaintiff did not receive the price of the cloth that has been sold by him to the first defendant through the second defendant.
It was alleged that the second defendant was the agent of the first defendant and cloth had been sold by the plaintiff on credit through the second defendant. The second defendant admitted that the first defendant 'actually paid the amount in suit to him before the goods in suit were purchased by him; that he had spent the said 'amount over the treatment of his father, who was ill; that consequently, he had taken the goods in suit from the plaintiff, on credit, in the name of defendant No. 1, along with the cash amount of Rupees 50'. The first defendant while admitting the fact that the cloth worth Rupees 1867-15-3 had been received by it and its price had been paid to the second defendant further contended that the latter had no right to purchase on credit as he had been paid cash money.
3. The trial court decreed the suit as against both the defendants, but on appeal the decree of the trial court was modified and the suit was decreed only as against defendant No. 2 and was dismissed as against defendant No 1.
4. The only question for consideration before the court below was whether under the circumstances of the case the first defendant was liable for the conduct of the second defendant. It was not denied that there was 'relationship of master and servant between defendant No. 1 and defendant No. 2'. It was further contended that the first defendant had never instructed the plaintiff to sell any cloth on credit to the second defendant in the name of the first defendant and it was emphasised that the first defendant had already paid the price of the cloth purchased from the plaintiff by the second defendant.
5. Learned counsel for the plaintiff-appellant contended that it could not be denied that the second defendant was a accredited agent of the first defendant and he was duly authorised to purchase cloth from the plaintiff for defendant No. 1 and in the transaction in question cloth had been sold to the first defendant through the second defendant on credit and the goods so sold had been duly received by the first defendant. It was urged that the second defendant as the agent of the first defendant was fully competent to purchase cloth on behalf of the first defendant on credit and the plaintiff who recognised the second defendant as the agent of the first defendant, had in the ordinary course of business sold cloth to the first defendant on credit through his agent the second defendant.
Admittedly the second defendant was the agent of the first defendant. It appears that there were dealings between the first defendant and the plaintiff through the second defendant since several years before the transaction in dispute was entered into. The plaintiff was dealing with the first defendant through its agent the second defendant. There is nothing on the record to indicate that the first defendant had informed the plaintiff that its agent had no authority to purchase goods on credit. If the second defendant was authorised to purchase goods on behalf of his principal, he could also be treated as competent by the second defendant to purchase goods on behalf of the first defendant on credit. The trial Court found that,
'Defendant No. 1 through defendant No. 2 had purchased cloth on credit several times and also the cloth in suit on credit'.
It appears that the aforesaid finding of the trial court was not categorically disturbed by the lower appellate court. It considered the question whether the first defendant had opened any credit account with the plaintiff. It found that.
'. ......It is amply clear that defendant No. 1 never opened any credit account with the plaintiff; nor they could do so, either by specific instructions to the plaintiff or by their conduct, which stand utterly unproved in this case'.
It was urged on behalf of the respondent that under the rules of the Society it could not have purchased goods on credit and, therefore, it could not have authorised its agent to make any purchase on cerdit. It may be that the society could not have entered into transactions on credit, but that by itself could not lead to the conclusion that the plaintiff should not have complied with the wishes of the second defendant to supply the goods to the first defendant on credit. If could not be denied that the second defendant had asked for the sale of the cloth on credit and it could not be said that the plaintiff should not have complied with the wishes of the agent for the supply of goods on credit because that was contrary to the rules of the Society. There is nothing to indicate that the plaintiff was aware of the aforesaid limitations in the powers of the Society. There is nothing to suggest that there was any collusion between the first defendant and the plaintiff.
Even if the second defendant had asked for the supply of goods on credit and the plaintiff being aware that it could not be done under the rules of the Society, agreed to abide by the wishes of the second defendant and supplied the goods on credit to the first defendant, he could not be said to have done anything contrary to law. In the present case, admittedly defendant No. 1 accepted the goods. In the absence of any finding that the plaintiff had acted fraudulently or in collusion with the second defendant in supplying the goods on credit to the first defendant, it must be held that the goods were supplied to the second defendant for the first defendant and the second defendant as the agent must be deemed to have the authority to make the said purchase from the plaintiff.
6. Learned counsel for the respondent strenuously argued that the purchase on credit was contrary to the rules of the Society. I was not shown any such rule which prohibitsSociety from making any purchase on credit. Even assuming that the purchase was made contrary to the rules of the Society, the plaintiff would not be affected unless it was shown that he had acted fraudulently or with the knowledge that the agent was acting beyond the scope of his authority in asking for the sale of cloth to the first defendant on credit. Learned counsel further argued that the second defendant had no authority to make the purchase on behalf of the first defendant. As mentioned above, the second defendant was an employee of the Society and was also its sales agent for the purchase of goods and he was entitled to certain commission presumably on the transactions entered through his agency.
Learned counsel emphasised that the court below did not believe the contention of the plaintiff that defendant No. 1 had opened a credit account with the plaintiff. The court below found that defendant No. 1 had not opened such a credit account with the plaintiff. It may be that the plaintiff was unable to prove that there was such a credit account of the first defendant with him. That finding by itself would not indicate that the plaintiff had not entered into the transaction in dispute with the defendant No. 2 treating the latter as the agent of the first defendant Once it is found that the plaintiff had entered into the transaction in dispute with the knowledge that the second defendant had the authority as an agent to enter into the transaction on behalf of his principal viz., the first defendant, there is no escape from the conclusion that the first defendant would he liable for the misappropriation of the amount of the sale consideration by the second defendant. The plaintiff had sold the goods to the first defendant through the agency of the second defendant. If the second defendant, who was the agent of the first defendant, had misappropriated the price of the cloth which had been paid to him by the first defendant, then in such circumstances the first defendant would be liable for the fraudulent act of the agent, viz., the second defendant.
7. The relevant provisions of the Contract Act are:
'Section 186. The authority of an agent may be expressed or implied.
Section 187. An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.
Section 237. When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent's authority.
Section 238. Misrepresentations made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals but misrepresentation made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals.'
In the present case the scope of the authority of the second defendant has to be inferred from the circumstances of the case He was acting as the sales agent of the first defendant and was in its employment and apart from his salary received some commission as well. There is nothing to show that the plaintiff believed that when he sought the purchase of cloth on credit his act was not within the scope of his authority. If the second defendant had committed any fraud while acting in the course of business of the first defendant, it would make the first defendant liable for the act of its agent. The rule of law on the subject was quoted from Story on Agency in Mc. Gowan and Co.. Ltd v. Dyer (1873) 8 QB 141 as follows:
'......the general rule that the principal is liable to third persons in a civil suit for the frauds, deceits, concealment, misrepresentations, torts, negligences, and other malfeasances or misfeasances and omissions or duty of his agent in the course of his employment, although the principal did not authorise, or justify, or participate in, or indeed know of such misconduct, or even if he forebade the acts, or disapproved of them.'
'But although the principal is thus liable for the torts and negligences of his agent yet we are to understand the doctrine with its just limitations, that the tort or negligence occurs in the course of the agency. For the principal is not liable for the torts or negligences of his agent in any matters beyond the scope of the agency, unless he has expressly authorised them to be done, or he has subsequently adopted them for his own use and benefit.'
In Citizens Life Assurance Co. Ltd. v. Brown, 1904 AC 423 the following rule of law was approved :
'Although the particular act which gives the cause of action may not be authorised, still if the act is done in the course of employment which is authorised, then the master is liable for the act of his servant.' In Lloyd v. Grace Smith and Co.. 1912 AC 716 it was held that the principal is liable for the fraud of his agent acting within the scope of his authority whether the fraud is committed for the benefit of the principal or for the benefit of the agent.
8. The principle laid down in Lloyd's case 1912 AC 716 (supra) was approved by a Division Bench of the Calcutta High Court in Dinabandhu v. Abdul Latif, ILR 50 Cal 258: AIR 1923 Cal 157. A Division Bench of the Nagpur High Court in Bissessardas Kasturchand v. Kabulchand Asaram. AIR 1945 Nag 121, observed:
'Even if the agent has acted in excess of his actual authority the liability of the firm remains, if the contracting party has been led into an honest belief In the existence of the authority to the extent apparent to him. Even if fraud is committed by agent for his own benefit the firm is liable if the agent is acting within the scope of his implied authority.'
9. In the present case, as mentioned above, the second defendant was acting within the scope of his authority in making the purchase of cloth from the plaintiff for the first defendant. If he made the purchase on credit and committed fraud, the first defendant was liable for the act of his agent. So far as the plaintiff was concerned, he had no reason to believe that the second defendant was not acting within the scope of his authority in making the purchase on credit for the first defendant. The court below was therefore in error in modifying the decree of the trial court and In decreeing the suit as against the second defendant only. The trial court has rightly decreed the suit against both the defendants.
10. The appeal is allowed with costs, thedecree of the lower appellate court is modifiedand the suit is decreed against both the defendants in terms of the decree passed by thetrial court.