A failed contract is not the whole section 235 test
Section 235 of the Indian Contract Act, 1872 addresses a person who untruly represents himself as another’s authorised agent and thereby induces a third person to deal with him in that capacity. If the alleged employer does not ratify the acts, the person is liable to compensate the other for loss or damage incurred by so dealing. Identify every element instead of assuming the entire contract price is automatically payable by anyone whose authority is questioned.
Read the applicable text: Government text: Indian Contract Act, sections 235–237 and ratification provisions.
Preserve the actual authority representation
Collect the relevant communication, purported mandate, signature block, contract and chronology. Establish what the counterparty was told and how that induced the dealing. A general commercial relationship or an impressive title does not by itself establish the represented transaction authority; equally, a later denial alone does not prove that the original representation was false.
Keep ratification and apparent authority distinct
Whether the alleged principal ratified requires its own factual and legal analysis. Section 237 separately concerns a principal’s words or conduct inducing a belief in an agent’s authority. Do not treat the pretended agent’s own assertion as automatically the principal’s representation, or assume that every lack of initial authority produces the same ultimate liability after subsequent events.
Link each loss to the dealing
Build an itemised causation working: payments, goods, costs, refunds, recoveries and remaining exposure. Avoid counting a deposit both as an unpaid debt and as a full unrecovered loss after refund. Claimed lost profits and other alleged damage need their own supporting basis; invoice value is not a statutory fixed-compensation formula.
Do not reverse section 236
Section 236 separately restricts a person who contracted in the character of agent but was really acting on his own account from requiring performance of that contract. It is a different inquiry from section 235 compensation. Distinguish the false actor’s demand for performance from the misled counterparty’s claim for loss.
Close with findings and unresolved facts
Record the representation, authority evidence, inducement, ratification position and causal loss schedule. Preserve contradictions and later recoveries. These illustrations show a claim working on stated assumed facts, not an adjudication of fraud, an automatic remedy against the alleged principal or a guarantee that every claimed expenditure will be allowed.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Deposit and refund
Assume a false-authority representation induced a ₹2 lakh deposit and no ratification followed. A verified ₹50,000 refund leaves ₹1.5 lakh unrecovered deposit. That is the deposit component of the working, subject to establishing the legal elements; it is not ₹2 lakh plus ₹1.5 lakh.
Illustrative example 2: Goods and salvage
A counterparty incurs assumed attributable cost of ₹4 lakh and recovers ₹1.1 lakh through a documented alternative disposal. The unrecovered cost is ₹2.9 lakh before other relevant adjustments. Preserve the recovery and causation evidence rather than claiming the gross cost without explanation.
Illustrative example 3: Contract price is not the loss calculation
The proposed contract value is ₹10 lakh, but the supported incurred-cost schedule contains ₹70,000 preparation and ₹30,000 transport, totalling ₹1 lakh. The ₹10 lakh headline does not automatically establish ₹10 lakh compensable loss. Evaluate any further claimed damage separately.
Illustrative example 4: Prevent duplicate expense rows
A draft claim lists ₹80,000 mobilisation and ₹45,000 freight. Evidence shows ₹20,000 freight was already included in mobilisation. The distinct total is ₹1,05,000, rather than ₹1,25,000. Reconcile the ₹20,000 overlap before presenting quantum.
Illustrative example 5: Separate later recoveries
An initially supported loss working is ₹3 lakh. A later ₹90,000 recovery reduces the unrecovered amount to ₹2.1 lakh on the assumed facts. Retain both dates and assess the recovery’s effect on the actual claim instead of silently keeping the earlier total.
Illustrative example 6: Do not pool different representations
Two transactions have assumed unrecovered amounts of ₹1.2 lakh and ₹0.8 lakh, totalling ₹2 lakh. Only the first presently has evidence supporting the representation and inducement elements. The presently supported factual file covers ₹1.2 lakh, with ₹0.8 lakh unresolved; a pooled total cannot supply the missing evidence.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the alleged agent | Legal identity and communications. |
| 2 | Record the representation | Exact asserted authority and transaction. |
| 3 | Check the authority evidence | Mandate and principal response. |
| 4 | Establish inducement | Decision and payment chronology. |
| 5 | Review ratification | Relevant conduct and informed decision evidence. |
| 6 | Separate section 237 issues | Principal’s own words or conduct. |
| 7 | Build causal loss components | Costs, goods and payments. |
| 8 | Deduct verified recoveries once | Refund and salvage reconciliation. |
| 9 | Review section 236 separately if relevant | Who is seeking performance and in what capacity. |
| 10 | Approve the supported claim file | Elements, quantum and unresolved facts. |
Sixteen practitioner FAQs
1. Does every failed agency transaction establish liability?
No. Test the statutory elements and facts.
2. What representation does section 235 address?
An untrue representation of authority to act as another’s agent.
3. Must the representation induce the dealing?
That causal link is part of the provision.
4. Is the alleged employer’s ratification relevant?
Yes. The provision expressly addresses absence of ratification.
5. Does a later denial alone prove false authority?
No. Examine the complete evidence.
6. Is the contract price automatically compensation?
No fixed contract-price formula follows from section 235.
7. Should refunds reduce the loss working?
Reconcile their actual effect on the claimed unrecovered loss.
8. Can the same cost appear twice?
Remove overlapping components before presenting quantum.
9. Does a loss spreadsheet establish inducement?
No. The evidence for each statutory element is separate.
10. Does the agent’s assertion automatically bind the principal under section 237?
Analyse the principal’s own words or conduct and the relevant conditions.
11. Is section 236 a general right for the false agent to enforce?
No. It contains the stated restriction on requiring performance.
12. Does this article determine fraud liability?
No. Do not treat the claim working as an adjudication of another cause of action.
13. Are all preparation expenses automatically recoverable?
Establish their causal and legal basis.
14. What happens when a later recovery occurs?
Update the working and assess its effect on the actual claim.
15. Can two transactions be pooled without individual evidence?
No. Keep their representations and factual support separate.
16. What completes the file?
Supported elements, ratification review, causal quantum and unresolved-issue record.
Official sources
Government text: Indian Contract Act, sections 235–237 and ratification provisions