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Civil Appeal No. 7 of 1962, decided on 20th February 1963.

(On appeal from the judgment and decree of the High Court of West Pakistan, Lahore, dated the 25th February 1959, in Regular First Appeal No. 58 of 1953/Civil Miscellaneous No. 302‑S of 1959).

S. 237‑Apparent authority in agent to enter into contract, though in fact he has no such authority‑Contract entered into by agent on behalf of principal Valid‑Term in contract of agency placing restrictions on authority of agent‑Unavailing against third parties who are unaware of such restrictions‑[Term requiring consent in writing of principal to contracts entered into by agent on principal's behalf]‑Estoppel -Principal estopped, where in spite of such term, he has agreed orally to a contract‑Evidence Act (I of 1872), S. 115.

According to section 237 of the Contract Act, 1872 if the agent has apparent authority to enter into a particular contract on behalf of the principal the contract is valid even though in fact he has no such authority.

Any term in a contract of agency which places restrictions on the authority of an agent is unavailing against parties who are not aware of such term if the circumstances are such as to confer an apparent authority on the agent to act on behalf of the principal.

A term, for instance, that written consent of the principal was essential before a contract could be entered into by the agent on behalf of the principal binds the agent. It does not bind the principal who is entitled at any time to waive it. If the principal has given directions to the agent that he is not to act on his behalf in the absence of certain circumstances, the principal can still confer upon him authority in the absence of those circumstances for acting on his behalf. The term between the parties that the agent will not without the written consent of the principal enter into a contract on his behalf does not create a law, which debars the principal henceforth from conferring authority on the agent in violation thereof. The law allows the principal to confer authority by word of mouth, and this right of his is not at all affected by a condition, which he has himself imposed on his agent. This condition he can always withdraw or waive.

Moreover, there is an element of estoppel where in spite of such term in the contract of agency, the principal has in fact orally agreed to a bargain being struck by his agent cannot afterwards plead that he had no right to confer authority on the agent. The other party is entitled to rely upon the word of the principal and regard the contract as good and binding.

Parties‑Party "not necessary" joined in appeal after lapse of time ‑ Appeal not rendered incompetent thereby-Civil Procedure Code (V of 1908), O. XLI, r. 20.

Ghias Muhammad Senior Advocate Supreme Court (Khan Iftikhar‑ul‑Haq Khan Advocate Supreme Court with him) instructed by Amjad Hussain Attorney for Appellant.

Muhammad Ali Zaidi Advocate Supreme Court instructed by Kamal Mustafa Bokhary Attorney for Respondents.

Date of bearing: 20th February 1963.

.‑This is an appeal by a plaintiff in a suit for damages for breach of contract and for return of earnest money, which was partly decreed by the trial Court but was dismissed by the High Court.

The plaintiff alleged in the plaint that he had entered into two contracts for purchase of 4‑F delinted cotton‑seed with defendant No. 1, the Roberts Cotton Association Ltd., Khanewal, through its agent defendant No. 2, a firm called Khan Brothers, carrying on business at Gujranwala. The first contract was for the purchase of 3000 bags of cotton seed and in respect of it Rs.3,000 were paid as earnest money to defendant No. 2, while the second contract was for the purchase of 1560 bags of cotton seed and in respect of it Rs.1,500 were paid to defendant No. 2 as earnest money. Both the contracts had been entered into in the second week of February 1951. Defendant No. 1 subsequently refused to perform the contract as a result of which the plaintiff suffered a loss of Rs.13,500. The suit was for a total sum of Rs.18,000.

Defendant No. 2 supported the claim of the plaintiff. It admitted that it had entered into the contracts alleged by the plaintiff and that it had in fact received a sum of Rs.4,500 as advance, and alleged that the contracts had been entered into after securing written consent of defendant No. 1. As to the sum of Rs.4,500 it was stated that it was lying with defendant No. 2 and defendant No. 1 had in spite of repeated requests of defendant No. 2 refused to receive this sum.

Defendant No. 1 accepted that defendant No. 2 was its Commission Agent selling goods on its behalf but relied on a term in the agreement of agency in accordance with which defendant No. 2 was not entitled to enter into any contract on behalf of defendant No. 1 except with the written consent of defendant No. 1. With respect to the alleged contracts it was stated that defendant No. 1 had given instructions to defendant No. 2 not to enter into these contracts. The story of the plaintiff as to the bargains with defendant No.1 was said to be fictitious and the result of collusion between the plaintiff and defendant No. 2, who, it was alleged, had been guilty of misappropriation of money belonging to defendant No. l

As against the term relating to written consent relied upon by defendant No. 1, defendant No. 2 took up the plea that defendant No. 1 bad issued a circular (Exh. D. 9) to all its commission agents explaining what written consent meant and that in accordance with this circular written consent did exist. Defendant No. I on the ether hand contended that Exh. D. 9 had never been issued by it.

The Senior Civil Judge who tried the suit found that Exh. D. 9 had in fact been issued by defendant No. 1 and he found further that one of the two contracts in dispute i.e., the contract relating to 3000 maunds of cotton‑seed had been entered into with the written consent of defendant No. 1, written consent being interpreted in the light of Exh. D. 9. The amount of damages incurred he found to be in accord with the claim made in the plaint and on these findings he awarded a decree for Rs.6,000 against defendant No. 2, a decree for Rs.9,000 against defendant No. 1 and a decree for Rs.3,000 (being the amount of the advance in relation to the contract of 3000 bags) against both defendants. Against this decree an appeal vas filed only by defendant No. 1 before the High Court. The High Court came to the conclusion that Exh. D. 9 was not sufficiently proved and therefore the contracts not being with the written consent of defendant No. 1 as required by the agreement between defendant No. 1 and defendant No. 2 were not binding on defendant No. 1. It accepted the appeal and dismissed the suit in so far as it related to defendant No. 1. Defendant No. 2 had not originally been made a party to the appeal and had been joined later on an application made by defendant No. 1. It was urged before the High Court that defendant No. 2 not having been made a party within the period of limitation could not have been joined in view of Order XLI, rule 20, C. P. C. and without his presence on the record the appeal was incompetent. This contention was repelled by the High Court.

The present appeal is confined to the contract for the purchase of 3000 bags because with respect to the contract for purchase of 1500 bags the suit had been dismissed by the trial Court and the plaintiff had not filed any appeal against the decision of the trial Court. Before us learned counsel for the plaintiff‑appellant has contended‑

(i) that there was sufficient proof of Exh. D. 9 on the record;

(ii) that in fact there was written consent of defendant No. I to the bargain in dispute; and

(iii) that in any case defendant No. 2 had apparent authority to enter into this contract in accordance with section 237 of the Contract Act.

The plea that in the absence of defendant No. 2 the appeal before the High Court was incompetent has also been repeated before us.

In order that the questions arising may be properly appreciated, it is necessary to make a brief statement of facts. On the 10th February 1951, the plaintiff approached Intizar Hussain, Manager of defendant No. 2 and told him that he wanted to purchase 3000 bags of 4‑F delinted cotton‑seed from defendant No. 1. Intizar Hussain was not aware of the prevailing rate and he sent the following telegram (Exh. D. 10) to defendant No. 1‑

"Wire 4‑F delinted cotton‑seed bilti cut rate with and without gunny. Pakistani buyer ready advance."

To this telegram the following telegraphic reply (Exh. D. 11) was sent by defendant No.1--

"Yours 10th 4‑F seed scarce quote 8/12 per maund exclusive sale‑tax."

On receipt of this telegram Intizar Hussain, in accordance with the statement, which he made as his own witness, was not satisfied as to whether this rate represented 4‑F delinted or roller. He telephoned to the General Manager of defendant No. 1 to clarify the matter. The General Manager told intizar Hussain on the telephone that these rates related to 4‑F delinted cotton seed ex‑Mill Rahimyar Khan and he authorised Intizar Hussain to enter into a bargain for the sale of 3000 bags of cotton‑seed with the plaintiff. Intizar Hussain then received a sum of Rs.3,000 from the plaintiff as earnest money and sent the following telegram (Exh. D. 14) to defendant No.1: ‑

"3000 bags of seed delinted sold on Rs. 8‑12‑0 per maund exclusive of sales‑tax. Advance received. Please confirm."

This telegram was sent on the 11th February 1951. As to when exactly it was received by defendant No. 1 at Khanewal is not clear from the record and there is a reference to this point later in this judgment but a telegraphic reply to this telegram was sent by defendant No. 1 on the 12th February 1951, at 8‑30 p.m. It ran: "Don't sell our seed."

So far as the proof of Exh. D. 9 is concerned we find ourselves in agreement with the learned Judges of the High Court. It is a document which purports to bear not the signature, but only the seal of Mr. Sisnett who was the General Manager of defendant No. 1 on the I0th August 1950, the date of this circular. The evidence produced by the plaintiff in proof of this document consisted only of the statements made by Mr. Intizar Hussain and Mr. Azaria an ex‑employee of defendant No. 1 that it bore the seal of Mr. Sisnett. The High Court not having been satisfied as to the genuineness of Exh. D.9 which had been described as a forgery by defendant No. 1 permitted fresh evidence to be led before. it in proof of this document. Defendant No. 1 produced before the High Court its dispatch register through a clerk and in that register there was no entry relating to the dispatch of this circular. The plaintiff led no evidence in rebuttal. Mr. M. R. Evans, Cotton Seed Officer of defendant No. 1 had already made a statement in the witness‑box before the Senior Civil Judge that Exh. D.9 had never been issued by defendant No. I and Mr. Zafar Subhani, Inspector of Agencies of defendant No. 1 had made a statement that the terms of the Agency Agreement Exh. D. 1/1, which was the original agreement between defendant No. 1 and defendant No. 2, were never amended. The learned Judges of the High Court were of the opinion that the proof offered as to the genuineness of Exh. D. 9 was insufficient. They pointed out that the plaintiff could easily have produced other commission agents of defendant No.1 to prove that they too had received this circular. At the same time the learned Judges found that in the correspondence between defendant No.1 and defendant N,). 2 relating to the transaction in dispute no reference has been made to Exh. D. 9 and this document has seen the light of the day for the first time on the 21st August 1952, when it was produced in Court by defendant No. 2. Even in his written statement defendant No. 2 had made no reference to Exh. D. 9 and all that he stated was that he had entered into the contracts in dispute with the written consent of defendant No.1

While we are in agreement with the learned Judges as to the insufficiency of proof relating to Exh. D. 9, it appears to us that the learned Judges while deciding the question as to whether defendant No 1 was bound by the agreement in dispute failed to notice some aspects of this case. According to the statements of the plaintiff and Intizar Hussain the latter had, after the receipt of the telegram Exh. D. 11, a telephonic talk with the General Manager of defendant No. 1 and the General Manager agreed that 3000 bags of 4‑F delinted cotton be sold to the plaintiff and Rs.3,000 be received as advance. With respect to this telephonic talk, in addition to the statements of the plaintiff and Intizar Hussain, there is also a statement made by Mr. Azaria who was on the date on which the contract in dispute was entered into, a Head Clerk Incharge of the Cotton Seed Branch of defendant No. 1, to the effect that he was present with the General Manager at the time when Intizar Hussain had a telephonic talk with him and the General Manager had agreed to the sale of 3000 bags on that very day. After a consideration of the whole material on record we are inclined to accept that Intizar Hussain had a talk with the General Manager of defendant No. 1 and that the General Manager had agreed to the sale of 3000 bags of seed to the plaintiff. We would make it clear that we are not accepting the telephonic talk on account of implicit reliance on the statements of Intizar Hussain and Mr. Azaria for against Intizar Hussain defendant No.1 has taken criminal proceedings and Mr. Azaria is an ex‑employee who according to his own admission was retrenched by defendant No.1 but we find it safe to accept their statements which are supported by the circumstances of the case. That there was in fact a telephonic call from Intizar Hussain to defendant No. 1 is established by a record of the Telephone Department. As to the subject‑matter of the talk we know to consider what happened before the talk and after it. Already the plaintiff had offered to purchase 4‑F delinted cotton‑seed and Intizar Hussain had asked for the rate of cotton‑seed from defendant No.1. He had mentioned in the telegram that the buyer was ready with the advance. The reply given was that the rate for the sale of 4‑F delinted cotton was Rs. 8‑12‑0 per maund. After the telephonic talk Intizar Hussain received a sum of Rs.3,000 as earnest money from the plaintiff and issued a receipt for the same. This receipt (Exh. P. 2) stated that the above bargain has been confirmed' by the General Manager of the Roberts Cotton Association Ltd., Khanewal on the telephone on that date. Then on the same day Intizar Hussain sent to defendant No. 1 the telegram Exh. D. 1 4 in which it was stated that 3000 bags had been sold and advance had been received. It is true that this telegram contains the words "please confirm", but by these words Intizar Hussain may have been asking for the confirmation of the talk on the telephone and these words do not necessarily imply that the General Manager has not already agreed. It is significant that to the telegram Exh. D. 14 there was no reply by defendant No.1 till 8‑30 p.m. on 12th February. The telegram had been sent on the 1lth February and it may well have been received on the 11th February. Mr. Zafar Subhani, Inspector of Agencies of defendant No.1 had stated: "on 11th February Khan Brothers asked for permission to sell 3000 bags of 4‑F delinted cotton‑seed." This may mean that the telegram was in fact received on 11th February, but even if it reached in the morning of 12th February, there is no reason why the reply "Don't sell our seed" should have been sent so late as 8‑30 p.m. in the evening if in fact the General Manager had not already agreed. A further consideration in connection with the reply is that according to the statement of Mr. W. R. Evans, Cotton Seed Inspector of defendant No. 1, the reply was just a general one and did not refer particularly to this contract. If this is so, then by this reply the contract was not being repudiated. There is no rebuttal from defendant No.1 with respect to this telephonic talk. It is true that the person who was the General Manager at that time has died, but the fact remains that the evidence is all on the one side and the circumstances are such as to support the story put forward by the three witnesses named above.

The next point to consider is the effect of the circum stances, which we regard as proved. In the first place it may be mentioned that defendant No. 1 carries on the business of sale of cotton seed. A person who carries on such a business would always be prepared to sell the seed provided he receives the price that suits him. When Intizar Hussain informed defendant No. 1 that there was a Pakistani buyer ready with advance and asked for rates, the reply of defendant No 1 quoting the rate of seed should imply that it was prepared to sell the seed at that rate. It would not be unreasonable to argue that it was an offer to sell it at that rate and this offer was accepted by the plaintiff. But neither the telegram sent by Intizar Hussain nor the reply of defendant No. 1 mention any particular quantity of cotton‑seed and, therefore, an argument is possible that in the absence of an agreed quantity there could not be a contract between the parties. It is not necessary, however, to labour this point because whatever the legal position up to the time when the telegram Exh. D. 11 was sent by defendant No. 1, in the telephonic talk the General Manager of defendant No. 1, who admittedly had authority to sell cotton‑seed, agreed to a sale of 3000 bags of cotton‑seed at Rs. 8‑12‑0. By this acceptance a valid contract came into existence, because there was a definite proposal and acceptance and it makes no difference that the proposal came through a commission agent who was not entitled to enter into contracts without the written consent of defendant No.1 Intizar Hussain could even be regarded as agent of the plaintiff for making this offer and with the acceptance of this offer there came into existence a contract between the parties themselves i.e., the plaintiff and defendant No. 1 without the intervention by any agent of defendant No.1. But in any case the General Manager had given specific authority to Intizar Hussain to enter into this particular contract and whether he bad authority or not otherwise to make a bargain on behalf of defendant No. 1, he did receive authority to enter into this particular agreement.

The main plea on behalf of defendant No. 1 if we bold the telephonic talk to be proved is that the written consent of defendant No. I was essential before a contract could be entered into by defendant No.2 on behalf of defendant No.1. To this contention there are two answers. The first is that in accordance with section 237 of Contract Act if the agent has apparent authority to enter into a particular contract on behalf of the principal the contract is valid even though in fact he has no such authority. The plaintiff had no knowledge of the term relating to written consent between defendant No. l and defendant No. 2. If he found that the General Manager of defendant No. 1 had agreed on the telephone to this contract he would be justified in presuming that henceforth Intizar Hussain had authority to enter into this contract. Any term in contract of agency which places restrictions on the authority of an agent is unavailing against parties who are not aware of such B term if the circumstances are such as to confer an apparent authority on the agent to act on behalf of the principal.

Another aspect of the matter is this term like this bind the agent. It does not bind the principal who is entitled at any time to waive it. If the principal has given directions to the agent that he is not to act on his behalf in the absence of certain circumstances, the principal can still confer upon him authority in the absence of those circumstances for acting on his behalf. The term between the parties that the agent will not without the written consent of the principal enter into a contract on his behalf does not create a law which debars the principal henceforth from conferring authority on the agent in violation thereof. The law of this country allows the principal to confer authority by word of mouth, and this right of his is not at all affected by a condition, which he has himself imposed on his agent. This condition he can always withdraw or waive. At the same time there is an element of estoppel in the circumstances with which we are dealing. The principal having in fact orally agreed to a bargain being struck by his agent cannot afterwards plead that he had no right to confer authority on the agent. The other party is entitled to rely upon the word of the principal and regard the contract as good and binding. In the present case it is matter for consideration that if it was defendant No. 1 who wanted to enforce the agreement, the plaintiff would have no answer.

Whether we regard the agreement, therefore, as a contract between defendant No., 1 and the plaintiff or we regard it as a contract between the plaintiff and defendant No, 2 as representative of defendant No. 1 it is binding on defendant No. 1.

There only remains the objection raised by the plaintiff appellant that the appeal before the High Court was not properly constituted as defendant No. 2 was not made a party within the period of limitation. It is true that if defendant No. 2 was a necessary party to the appeal his addition as a party after the period of limitation could not have cured the defect in the constitution of the appeal. Defendant No. 2 was, however, not a necessary party to the appeal. The plaintiff had secured decrees against both defendants. Defendant No. 1 when it filed the appeal; was not asking for any relief against defendant No. 2 and it only wanted to get rid of the decree passed against it .in favour of the plaintiff. Prima facie the only necessary party to the appeal was the plaintiff. A contention is put forward that defendant No. 2rhad a right of contribution in case the plaintiff applied for executing the decree with respect to the sum of Rs.3,000, but the complaint on this question should have been made by defendant No. 2. He took no objection to the constitution of the appeal in the High Court and before us he had not appeared at all. He himself filed no appeal against the decree of the High Court.

As a result this appeal is accepted, the decree of the High Court is set aside, and the decree of the trial Court is restored. The plaintiff‑appellant shall have his costs in the High Court as well as in this Court. Costs of the suit will be paid as ordered by the trial Court.

A. H. Appeal accepted.

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