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Chapter X - Agency

Section 238

Section 238: Agent’s misrepresentation or fraud

An agent’s misrepresentation or fraud in the principal’s agency business can affect agreements as though the principal committed it.

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Need advice on Section 238?

This article is for general information. Refer to the Indian Contract Act, 1872 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.

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Statutory text

Bare law

Misrepresentation 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 misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals.

Illustrations

(a) A, being B’s agent for the sale of goods, induces C to buy them by a misrepresentation, which he was not authorized by B to make. The contract is voidable, as between B and C, at the option of C.

(b) A, the captain of B’s ship, signs bills of lading without having received on board the goods mentioned therein. The bills of lading are void as between B and the pretended consignor.

Rule and business relevance

The provision distinguishes conduct in the course of the principal’s business from matters outside the agent’s authority. The first illustration makes a goods sale voidable even though the agent was not authorised to make the particular misrepresentation.

Limits and related provisions

Do not equate lack of permission to lie with the whole matter being outside agency authority. Equally, do not attribute every unrelated fraud by an agent to the principal.

Hypothetical business example

Hypothetical example: A sales agent misrepresents goods in an entrusted sale. The agreement’s effect is assessed under section 238 rather than excusing the principal merely because dishonesty was not instructed.

Practical decision flow

Identify the agency business and relevant agreement.

Assess whether the misrepresentation or fraud occurred in its course or in an outside matter.

Apply the resulting agreement consequences and other relevant consent rules.

Check the applicable legal framework

This guide explains the central provision. Applicable State amendments, the agreement, transaction date and other governing laws can affect its application. Check the current legal framework before relying on it for a commercial decision.

Practical checklist

Do

  • Identify the agency business and relevant agreement.
  • Assess whether the misrepresentation or fraud occurred in its course or in an outside matter.
  • Apply the resulting agreement consequences and other relevant consent rules.

Avoid

  • Do not equate lack of permission to lie with the whole matter being outside agency authority. Equally, do not attribute every unrelated fraud by an agent to the principal.

Glossary

Agency-business fraud
Fraud within the business undertaken for the principal in the stated setting.
Outside-authority matter
A matter outside the authority, distinguished by the second limb.

Frequently asked questions

Must the principal expressly authorise the false statement?

The first illustration shows that absence of such permission does not itself prevent the stated effect.

Does every unrelated fraud affect the principal?

No. The provision distinguishes matters outside authority.

What effect does the first illustration state?

The contract is voidable between principal and buyer at the buyer’s option.

Need help applying this provision to your situation?

Contact Bizeneed

Last updated 10 October 2026