Section 116 The Indian Contract Act, 1872
Section 116 of the Indian Contract Act, 1872 states:
Section 116 – Contract with agent without authority
A person who contracts with an agent without knowing or having reason to believe that he is an agent, cannot, afterwards, set up against the agent the fact that the principal is not bound by the contract.
Explanation:
If a person deals with someone believing him to be the principal (not knowing he is just an agent), he cannot later claim that the actual principal is not liable and try to escape liability by saying, "You were just an agent."
Key Points:
Protects agents acting in good faith when the other party assumes them to be the principal.
Prevents unfair escape from contractual obligations by third parties.
Example:
Suppose A (an agent) enters into a contract with C, and C does not know or suspect that A is acting on behalf of B (the principal). Later, C cannot deny the contract with A by saying, “You were only an agent, so I’m not bound.”
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