Indian Contract Act, 1872 · Chapter X: Agency · Effect of agency on contracts with third persons
Section 237: Liability of principal inducing belief that agent's unauthorized acts were authorized
In plain words
If an agent acts without authority, the principal is still bound if their words or conduct led third persons to believe the acts were within the agent's authority.
Example: A tells their agent B privately not to sell below a fixed price. C, unaware of this, buys from B at a lower price. A is bound by the sale.
A simplified explanation, prepared with AI assistance from the official text below and checked automatically against it for numbers and cross-references. The official text is the law and prevails over this summary. Not legal advice.
Official text
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.
Illustrations
(a) A consigns goods to B for sale, and gives him instructions not to sell under a fixed price. C, being ignorant of Bs instructions, enters into a contract with B to buy the goods at a price lower than the reserved price. A is bound by the contract.
(b) A entrusts B with negotiable instruments endorsed in blank. B sells them to C in violation of private orders from A. The sale is good.
Source: India Code (indiacode.gov.in), the consolidated text published by the Legislative Department, Government of India. Text as updated on India Code on 15 October 2026. Words in square brackets [ ] were inserted or substituted by later amending Acts, and *** marks words omitted by an amendment. The amendment footnotes are not reproduced here. Official text on India Code.