Liability of an Agent

(Sec 230 – 238 of Indian Contract Act, 1872)

Dr. Megha Ojha

 Liability of an Agent
1) Personal liability of an Agent (Sec. 230)
2) Misrepresentations and Frauds (Sec. 238)
3) Rights and liabilities of undisclosed principal (Sec. 231)
 Personal Liability of Agent (Section 230)
Section 230. Agent cannot personally enforce, nor be bound by, contracts on behalf
of principal.— In the absence of any contact to that effect an agent cannot
personally enforce contracts entered into by him on behalf of his principal, nor is
he personally bound by them.
Presumption of contract to contrary.— such a contract shall be presumed to exist in the
following cases:—
1) where the contract is made by an agent for the sale or purchase of goods for a
merchant resident abroad;
2) where the agent does not disclose the name of his principal;
3) where the principal, though disclosed, cannot be sued.
 1) Personal Liability of Agent (Section 230)
Agent cannot sue or be sued unless contrary contract
• Marine Container Services South (P) Ltd. Vs. Go Go Garments (1998) – “In the absence of
any contract, an agent cannot personally enforce contracts entered into by him on behalf of the
principal, nor is he personally bound by them”.
• There can be certain circumstances in which the agent incurs personal liability. As per Section 230,
there may be a contract to the contrary.
• It has already been seen that the chief function of an agent is to establish contractual relationship
between the principal and third parties. The agent then drop out. This is known as the principle of the
agent’s immunity from personal liability.
• The rule of Agent’s immunity applies even where the agent has contracted beyond his authority
and principal would not be liable, but here the agent would be liable to compensate the third party
for loss (See Section 235).
 1) Personal Liability of Agent (Section 230)
Presumption of contrary contract
1) Foreign principal – Where an agent contracts for “a merchant resident abroad”
there is the presumption that the agent undertakes personal liability [Sec. 230(1)].
The presumption being still a part of the law, an agent can only overthrow it by
contracting in a manner showing an intention not to incur personal liability.
Nandan Iron and Metal Industries vs. Fenesty Inc. (1992)
Facts - Where a contract made through an agent for the import of metallic recovery
expressly provided that the obligations of the principal or seller were not enforceable
against the agent. Held - A claim for shortage in metallic recovery against the agent is
not maintainable.
 1) Personal Liability of Agent (Section 230)
Presumption of contrary contract –

1) Foreign principal – case

W.B. Essential Commodities Supply Corpn Ltd. Vs. Koren Foreign
Transportation Corpn. (2002)
Facts – Where there was a short landing of goods and a suit for damages was
filed against the foreign principal, the carrier.
Held – The Indian agent was automatically discharged of liability. Both
principal and agent could not be sued together.
 1) Personal Liability of Agent (Section 230)
Presumption of contrary contract –

1) Foreign principal
• By virtue of the provision in Section 230 the presumption has statutory
force in India.

Case – Tutika Basavraju vs. Parry & Co.

A company registered in England, and having a place of business in India,
has been held to be a foreign principal for the purposes of this presumption
and the Indian agent acting for it was held personally liable.
 1) Personal Liability of Agent (Section 230)
Presumption of contrary contract –

2) Principal unnamed -
• The presumption of agent’s personal liability arises when he “does not disclose
the name of the principal.”

Castrol Ltd. vs. Admiral Shipping Ltd. (2005).

Where an agent contracts for an undisclosed principal, he definitely is personally
liable, being a party to the contract”.
The presumption may arise even where the agent discloses his representative
character, but not the name of his principal.
 1) Personal Liability of Agent (Section 230)
Presumption of contrary contract –

3) Non-existent or incompetent principal

• An agent is presumed to incur personal liability where he contracts on behalf of a
principal who, “though disclosed cannot be sued”.
• An agent who contracts for a minor, then the agent will be personally liable.

Kelner vs. Baxter (1981)

• “Where promotors buy goods on behalf of a projected company they become
personally liable to pay for them. The company being not in existence at the time of
the contract, cannot be sued”.
Section 232. Performance of contract with agent supposed to be principal.—
Where one man makes a contract with another, neither knowing nor having
reasonable ground to suspect that the other is an agent, the principal, if he
requires the performance of the contract, can only obtain such performance
subject to the right and obligations subsisting between the agent and the other
party to the contract.
Illustration
a) A, who owes 500 rupees to B, sells 1,000 rupees worth of rice to B. A is acting as
agent for C in the transaction, but B has no knowledge nor reasonable ground of
suspicion that such is the case. C cannot compel B to take the rice without
allowing him to set-off A’s debt.
Election by Third Party (Section 233)
Section 233. Right of person dealing with agent personally liable.—In cases
where the agent is personally liable, a person dealing with him may hold either
him or his principal, or both of them liable.
Illustrations
• A enters into a contract with B to sell him 100 bales of cotton, and afterwards
discovers that B was acting as agent for C. A may sue either B or C, or both, for
the price of the cotton.
• Note – Indian judiciary in such cases allowed third party to sue principal and
agent jointly.
Section 228. Principal not bound when excess of agent’s authority is not
separable.—Where an agent does more than he is authorized to do, and
what he does beyond the scope of his authority cannot be separated
from what is within it, the principal is not bound to recognize the
transaction.
Illustration
• A, authorizes B to buy 500 sheep for him. B buys 500 sheep and 200
lambs for one sum of 6,000 rupees. A may repudiate the whole
transaction.
Estoppel by Third Party
Section 234. Consequence of inducing agent or principal to act on belief that
principal or agent will be held exclusively liable.—When a person who has made a
contract with an agent induces the agent to act upon the belief that the principal
only will be held liable, or induces the principal to act upon the belief that the
agent only will be held liable, he cannot afterwards hold liable the agent or
principal respectively.
• In Section 234, the method of selection is indicated.
• If third party leads the agent to believe that only the principal will be held liable or
the principal to believe that only agent will be held liable, then he cannot
afterwards change his stance.
Pretended Agent
Section 235. Liability of pretended agent.—A person untruly representing himself to
be the authorized agent of another, and thereby inducing a third person to deal with
him as such agent, is liable, if his alleged employer does not ratify his acts, to make
compensation to the other in respect of any loss or damage which he has incurred by
so dealing.
Note - If the truth is already known to the other party, no liability arises [Ref. Seth Manibhai vs. Bai
Rupaliba (1899)].

Section 236. Person falsely contracting as agent, not entitled to performance.—A

person with whom a contract has been entered into in the character of agent, is not
entitled to require the performance of it, if he was in reality acting, not as agent, but
on his own account.
 2) Misrepresentations and Frauds
Section 238. Effect, on agreement, of misrepresentation or fraud by agent.—
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
principal; 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.
 Misrepresentations and Frauds - Cases
• Citizens’ Life Assurance Co. vs. Brown (1904) “to fix the principal with vicarious
liability for agent’s wrong, it is necessary that it must be committed in course of the
principal’s business. Although the particular act may not be authorized but of it is
done in the course of carrying on authorized business, the principal is liable”.
Briess vs. Wooley (1954)
• Facts – A director of a company started negotiations for a contract without any
authority and made fraudulent representation. Subsequently he was authorized to
complete the contract, but did nothing to correct the misrepresentations.
• Held – The company was held liable.
 Misrepresentations and Frauds - Cases
L.C.B. Gower, Agency and Fraud (1952)
The principal is not liable for fraud in respect of his agent’s act unless –
a) He intends or knowingly permits the agent to make a false statement,
or
b) His agent acting within the actual or apparent scope of his authority
makes a statement with knowledge of its falsity or recklessly not
caring whether it be true or false.
 Practice Questions

1) What are the liabilities of an agent?

2) What are the circumstances when the agent is
personally liable?
3) What are the liabilities of pretended agent?
 Cases for Discussion
(Class Participation Activity)
● Prem Nath Motors Ltd v Anurag Mittal AIR 2009 SC 567
● National Textile Corpn Ltd v Naresh Kumar Badri Kumar
Jagad AIR 2012 SC 264