Introduction:
‘To find a purchaser’ and ‘to sell’ are two concepts that are rarely deliberated upon among the legal fraternity. This is mostly owing to the fact that the Indian Contract Act, 1872 (hereinafter referred to as ‘the Act’) does not have a specific provision regarding the same. However, a number of disputes arising on account of the ambiguity surrounding these two concepts. In an increasingly commercial and globalized world, these are two very imperative concepts that form the basis of a number of transactions.
Despite the absence of a specific section in the Act which deals with them, the two phrases find their basis in Chapter X of the Act which deals with Agency. The ambiguity in the two concepts arises mostly because of the existence of different types of agents and the authority each of them is vested with, which is not expressly mentioned in the Act. The two phrases – ‘to find a purchaser’ and ‘to sell’ – refer to the kind of duty or authority vested in the agent for which they are hired. In most cases, however, they are used interchangeably. This, in turn, contributes to its ambiguity. This usage is not restricted to that of the layman and is also seen in legal parlance as well. Though this may not be of much concern under normal circumstances, at the time of legal disputes the interpretation of the phrase and the intention behind the usage of these specific phrases become important.
Due to its unclear interpretation, courts all across the world have varying opinions regarding these concepts. In India, several cases have dealt with this issue. Depending on the facts of the case and the terms of the concerned contract, the perspectives of the courts may differ. This is also seen in the case of Common Law disputes and cases in the United States. Due to the lack of a codified, statutory authority regarding the same, these disputes are dealt with on a case-to-case basis. In the case of India, a number of precedents and Common Law judgments are relied upon.
This article, therefore, seeks to bring more clarity to the difference between the two phrases and their usage. Since the two are mostly dependent on the types of agents employed and their authority, the article explores the different types of agents and their authority with specific reference to their duty in relation to these two phrases. To better understand the position of law, especially that of India’s, regarding the same, a few case laws have also been used.
Role of Authority
In the relationship between a principal and agent, authority plays an integral role. It is the authority that determines whether an agent is allowed to do a specific act and whether the principal will be held liable for the same. Sections 186 to 189 of the Act talk about the authority of an agent – express, implied, incidental, and emergency. Depending upon the authority vested in the agent, a dispute can be decided upon with much more clarity.
As defined in the Indian Contract Act, express authority is one that is written or given by words.[1] In the case of express authority, there is usually not much ambiguity as to whether an agent was authorized to sell or simply find a buyer for the principal. In such a case, the contract expressly mentions whether the agent was allowed to enter into a contract with the buyer and thus bind the principal, or if the agent’s authority is restricted to finding a potential buyer. In the case of Shanti Vijay and Co. v. Princess Fatima Fouzia,[2]the Supreme Court held that the expression ‘negotiate for sale’ has a definite connotation and cannot be assumed to mean that the agent can bind the principal by entering into a contract of sale. The authority of the agent here is restricted to finding a purchaser for the principal’s property.
According to the Act, implied authority is one that can be inferred from the circumstances of the case. The inference could be from written or spoken words or the ordinary course of business.[3] In most cases, implied authority causes ambiguity and uncertainty. Since the terms are not expressly mentioned in the contract, in case of a dispute, it is the court’s interpretation of the implied term or act that determines the case.
In normal circumstances, it is pretty clear as to what constitutes express and implied authority. However, in the case of the authority to find a purchaser or to sell, as the case may be, the principle of express and implied authority is not the same. An agent may be employed to ‘sell’ a specific piece of land as per the written terms of the contract however, in reality, the agent’s duty is confined to finding an individual who is ready, willing, and able to buy from the principal in accordance to their terms.[4] Thus, even though the word ‘sell’ is expressly mentioned in the contract, it does not confer any authority upon the agent to actually carry out the sale. The phrase ‘to sell’ here signifies ‘to find a purchaser.’ However, this does not mean an agent is entirely barred from selling the principal’s property. The authority to sell the property of the principal must be extremely clear and direct. It could be inferred from the principal’s actions as well however, in such a case too the action must be very specific. It cannot fall under the general scheme of things.[5] In the case of Foujdar Kameshwar Dutt Singh v. Ghanshyamdas,[6] the actions of the plaintiff could be inferred to have conferred implied authority to his agent (in this case, the plaintiff’s elder brother). The elder brother was authorized to manage all the affairs according to a document that had been executed, and the transaction carried out by him was known to the plaintiff. Similarly in the United States case of Veatch v. Gilmer,[7] the principal had conferred on his agent a power ‘to do any lawful act for and in my name as if I were present.’ The Court held that such a statement inherently conferred on the agent the power to not only find a buyer but also to carry out the sale of the property.
The Indian Contract Act does not deal with incidental authority specifically. It refers to that authority conferred on an agent such that the principal will be held liable even for the agent’s unauthorized acts.[8] In such cases, the third-party or buyer would be unaware of the existence of the principal and would assume the agent to be the owner. This type of authority is usually not found in the concept of ‘to sell’ or ‘to find a purchaser.’ In Watteau v. Fenwick,[9] Judge Willis mentions that the principal can be held liable for the acts of their agent under incidental authority only if the said act is ‘within the authority usually confided to an agent.’ In the case of this concept, an agent is usually only given the authority to find a purchaser and not to sell the property. As mentioned before, the contract has to expressly provide for such a provision to sell the property, either in words, written, or inaction. The mere agency even in the presence of the phrase ‘to sell’ would still constitute the finding of a buyer.
Similarly, the authority conferred on an agent in case of an emergency or in case of necessity[10] would also not apply here. This concept of determining a buyer is only applicable in ordinary circumstances.
Types of Agents: Relation to Authority
Several types of principal-agent relationships exist however not all of them suffer from the ambiguity that arises due to the usage of the phrases ‘to sell’ and ‘to find a purchaser.’ Solicitors, insurance agents, the post office, the employees of a company, et cetera, all fall under the category of agents. To understand the distinction between the two phrases, therefore, only those agents who are directly affected by the usage of these phrases have been discussed below. Such ambiguity is mostly seen in the case of brokers, estate agents, and auctioneers.
Brokers
If one was to put it in simple words, a broker acts as a middle man between the principal and the buyer. As defined by Anson, he is “primarily employed to negotiate a contract between two parties.”[11]A broker’s job is, therefore, to find a buyer for the principal’s property. The broker’s contract with the principal may mention the term ‘sell’ and not ‘find a purchaser’ however, in the absence of more specific terms the former would mean ‘to find a purchaser.’ A mere broker is therefore not authorized to enter into a binding contract with a purchaser in the name of the principal.[12] The authority of the broker is strictly restricted to finding a buyer unless otherwise specifically mentioned.
In Abdulla Ahmed v. Animendra Kissen Mitter[13], the Court held that the authority given to a broker to negotiate a sale and to find a purchaser, without furnishing him with all the terms means that the broker is given the authority ‘to find a man willing to become a purchaser and not to bind him and make him a purchaser.’ However, in the case of K. Appa Rao v. Gopal Doss,[14]the Court held that since the contract contained the terms ‘to negotiate and complete the sale of the property,’ there was express authority given to the broker by the principal to bind the latter by a contract of sale.
Estate Agent
The function of an estate agent is similar to that of a broker. While a broker only acts as a middle man and finds a buyer, an estate agent, in addition to this, is given “the implied authority to make representation or to give warranties relating to the property.”[15] An estate agent too cannot enter into a binding contract on behalf of the principal. If the estate agent is expressly authorized to only find a purchaser, the law would not imply any further authority on them to enter into any kind of contract on the seller’s behalf.[16] However, in Ryan v. Pilkington[17], the court laid down that an agent authorized to find a purchaser is also vested with the implied authority to accept a deposit from the potential purchaser.
It is not, however, impossible for an estate agent to carry out actual sale and bind a principal. If the terms of the contract expressly allow such sale, the agent can carry out the transaction and thereby bind the principal. A broker is usually not given such authority. Where the estate agent is given such authority to sell the property, they are usually also provided with the powers required “to execute all the instruments necessary to complete the sale and carry it into effect.”[18]
Auctioneer
An auctioneer’s duty is quite different from that of a broker or an estate agent. Such an agent is allowed to sell the property of the principal however, they cannot give warranties as to the property sold unless expressly authorized by the seller.[19] Though an auctioneer is primarily the agent of the seller, they also act as the agent of the buyer upon the auction of the property to fulfill certain formalities. There is no question as to whether the auctioneer has to ‘find a purchaser’ or simply ‘sell’ the property. On identifying a suitable bidder, the auctioneer has full authority to sell the property of the principal. However, the auctioneer’s authority to sell the principal’s property is restricted to its sale in an auction. The former is not authorized to sell the property in a private sale.[20]
In addition to the above agents, factors, commission agents, and many other such agents are vested with the authority to carry out the sale of their principal’s property. Their contract must contain the terms for such sale however, such agents are generally employed to carry out the entire process on behalf of the seller or the principal. This includes finding the purchaser, negotiating the terms, and finally carrying out the actual sale. Such agents are also authorized to buy goods on behalf of their principals.
The authority conferred on agents on account of these two phrases is comparable to that of a special agent’s authority.[21] “A special agent has no apparent authority beyond the limits of his appointment and the principal is not bound by his acts in excess of those limits whether the other contracting party knows of them or not.”[22] In the case of an agent who is authorized to carry out the actual sale of the property, the authority will be expressly mentioned in clear and definite terms in the contract. However, if the phrase ‘to sell’ has been used in the ordinary context, then the authority of the agent is restricted to finding a purchaser only. The agent has no authority beyond this and can therefore not bind the principal for the sale of the good.
Conclusion
The usage of the phrases ‘to sell’ and ‘to find a purchaser’ might be seen to be ambiguous however, the interpretation of the courts universally offers some clarity regarding the same. If express, clear and definite terms have been specified in the contract by words, written or spoken, or by action, authorizing the sale of the principal’s property, then the agent is authorized to carry out the sale of the said property. They are also authorized to carry out the concerned formalities for the sale. The terms or the action used to indicate such authority must not be generic. Auctioneers, factors, and commission agents fall under this category.
However, when the word ‘sell’ is used generally, it restricts the authority of the agent to find a potential buyer. The agent in this case is not authorized to bind the principal by entering into a contract with the buyer. Their authority is restricted to negotiating the sale. Brokers and estate agents usually fall under this category of agents.
While the general idea for the two phrases has been understood, there is no definite way to determine every case of the same nature. Courts all around the world have to take into consideration the facts and circumstances of the case while determining them. Ambiguity regarding these phrases must be eliminated as they affect all the parties involved. They affect the commission entitled to the agents and cause financial losses to the principal and third parties. Thus, in order to carry out transactions much more smoothly, there must be clarity on these phrases.
References:
[1] Indian Contract Act, 1872, §187, No. 9, Acts of Parliament, 1872 (India).
[2] Shanti Vijay and Co. v. Princess Fatima Fouzia 4 SCC 602 (1979).
[3] Indian Contract Act, 1872, §187, No. 9, Acts of Parliament, 1872 (India).
[4] Floyd R. Mechem, Implied Powers of Agent for Sale of Land, 10 Mich. L. Rev. 259, 259 (2012).
[5] Floyd R. Mechem, Implied Powers of Agent for Sale of Land, 10 Mich. L. Rev. 259, 265 (2012).
[6] Foujdar Kameshwar Dutt Singh v. Ghanshyamdas Supp SCC 689 (1987).
[7] Veatch v. Gilmer 2 S. W. 746 (Tex.1908).
[8] J. Beatson, Anson’s Law of Contract 669 (28th ed. 2010).
[9] Watteau v. Fenwick 1 Q.B 346 (1893).
[10] Indian Contract Act, 1872, §189, No. 9, Acts of Parliament, 1872 (India).
[11] J. Beatson, Anson’s Law of Contract 673 (28th ed. 2010).
[12] Floyd R. Mechem, Implied Powers of Agent for Sale of Land, 10 Mich. L. Rev. 259, 259 (2012).
[13] Abdulla Ahmed v. Animendra Kissen Mitter AIR SC 15 (1950).
[14] K. Appa Rao v. Gopal Doss SCC Online Mad 166 (1945).
[15] J. Beatson, Anson’s Law of Contract 673 (28th ed. 2010).
[16] Alexander Irvine, The Fraudulent Estate Agent, 30 Mod. L. Rev. 216, 216 (1967).
[17] Ryan v. Pilkington 1 W.L.R. 403 (1959).
[18] Floyd R. Mechem, Implied Powers of Agent for Sale of Land, 10 Mich. L. Rev. 259, 271 (2012).
[19] J. Beatson, Anson’s Law of Contract 672 (28th ed. 2010).
[20] Floyd R. Mechem, Implied Powers of Agent for Sale of Land, 10 Mich. L. Rev. 259, 269 (2012).
[21] Floyd R. Mechem, Implied Powers of Agent for Sale of Land, 10 Mich. L. Rev. 259, 263 (2012).
[22] Sir Frederick Pollock & 3rd Baronet, Pollock & Mulla on Indian Contract and Specific Relief Acts 1817 (15th ed. 2020).
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