Personal liability of Agent

As a general rule, when an agent acts on behalf of his principal in his dealings with a third person, a
contractual relationship between the principal and the third person is created and the agent is not
personally liable. It is the principal who is liable to the third person. Neither the agent can personally
enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them.
As an agent acts for and on behalf of the principal prima facie a suit for specific performance is not
maintainable against the agent. This rule is contained in Section 230. This rule is subject to a contract
to the contrary. Section 230 is as follows:-

“230. Agent cannot personally enforce, nor be bound by, contracts on behalf of principal.-In the
absence of any contract 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.”

According to Section 230, an agent is presumed to have consented to be personally liable in the
following cases :-

(1) Where the contract is made by an agent for the sale or purchase of goods for merchant resident
abroad;

(2) Where the agent does not disclose the name of his principal;

(3) Where the principal, though disclosed, cannot be sued.

In the three exceptional cases mentioned above, the presumption is that the agent agrees to
undertake personal liability. The personal liability of the agent also arises in certain other situations,
i.e.,

(4) When there is a contract for the agent’s personal liability;

(5) When the agent makes a breach of some legal obligation;

(6) When he untruly represents that he has an authority to act on behalf of the principal.

An agent is merely an extended hand of the principal and cannot claim independent rights.
In Prem Nath Motors Ltd. v. Anurag Mittal A.I.R. 2009 S.C. 567, the Apex Court dealt with the
relationship of agent and principal and held that in view of the provisions of Section 230 of the
Indian Contract Act, 1872, an agent was not liable for the acts of a disclosed principal subject to a
contract to the contrary.

“When the relationship of principal and agent is established”, the Court ruled that the agent could
not be sued when the principal had been disclosed. (1) When agent acts on behalf of a foreign
principal

When an agent has entered into a contract for the sale or purchase of goods on behalf of a principal
resident abroad, the presumption is that the agent undertakes to be personally liable for the
performance of such a contract. The object of this provision is to avoid hardship to a third person
which would be there in suing such a principal, or enforcing a decree against him. The presumption
that in such a case the agent is personally bound can be rebutted by a contract between the third
person and the agent.

In Midland Overseas v. CMBT Tana A.I.R. 1999 Bom. 401, it has been held that if the circumstances
indicate that the agent acts on behalf of a principal resident abroad, but does not undertake to be
personally liable, then the agent’s personal liability does not arise.

In this case, the agent had acted on behalf of a foreign principal who was named and disclosed.
Moreover, while contracting, the agent had not undertaken any personal liability. Under these
circumstances, the agent could not be sued personally, nor could he be made personally liable for
the breach of contract. Therefore, it was further held that the plaint against such an agent could be
rejected under Order 7, Rule 11 of the Code of Civil Procedure.

Option to sue foreign principal or Indian agent

Under Section 230, the plaintiff has an option to sue either the foreign principal or the Indian agent.
He cannot sue both of them.

In W.B. Essential Commodities Supply Corp. Ltd. v. Koren T.T. Corpn. A.I.R. 2002 Cal. 211, there was
a contract of carriage of goods from port outside India to port within India. Goods landed in India
were in short quantity. For short landing of goods the plaintiff sued the foreign principal. Thereafter,
the plaintiff filed another suit against the Indian agent.

It was held that when an action was brought against the foreign principal, Indian agent was
automatically discharged from the liability. The plaintiff did not have a right to sue both the foreign
principal and the Indian agent.

Agency Coupled with Interest

An agent coupled with interest has a right to sue. Such agencies are contemplated under the laws of
contract. In Tashi Delek Gaming Solutions Ltd. v. State of Karnataka A.I.R. 2006 S.C. 661, the
respondent State made a declaration, in the exercise of power conferred under the Lotteries
(Regulation) Act, 1998, to put ban on Internet lotteries carried out by other States in the State of
Karnataka. As a consequence, the appellants who were appointed agents of the States, were to lose
a huge amount of money which they had invested, besides they would be deprived of their right to
carry on business. The question which arose for consideration was as to whether the appellants
herein had any independent right to question the validity of the said notification imposing ban by the
State of Karnataka.

Holding that in certain situations, an agent coupled with interest might be sued as regards his own
liabilities independent of his principal, he might in his own right maintain action if by a statutory
provision his right to carry on his business was affected. Since, the agent could be prosecuted for
violation of the terms of notification, he could challenge the validity thereof. The Court ruled that
access to justice being a human right; it would not be correct to say that an agent could enforce his
rights only through his principal and not independently.

Holding that the ordinary rule laid down in Section 230 of the Contract Act, 1872 which reads as “In
the absence of any contract to the contrary, an agent cannot personally enforce contract entered into
by him on behalf of his principal, nor is he personally bound by them”, in case of an “agency coupled
with interest”, it was settled law in England and as observed by Pollock and Mulla :

“The like rule is laid down by Indian Courts that where an agent enters into a contract as such if he
has an interest in the contract, he may sue in his own name. This is not a real exception to the rule
laid down at the beginning of the Section, the agent being in such a case virtually a principal to the
extent of his interest in the contract.”

2) When agent acts for an Undisclosed Principal

Another exceptional situation, when an agent is presumed to be personally liable according to

Section 230, cl. (2), is “where the agent does not disclose the name of his principal.” When the agent
discloses that somebody is the principal but he does not disclose his name, there arises a
presumption that he himself undertakes to be personally liable.

When the agent does not disclose that he is somebody’s agent, i.e., he contracts in his own name, he
is himself bound by the contract with the third person. When the principal is undisclosed, the liability
under Section 230 is of the agent only and the principal cannot be sued in such a case.

Right of undisclosed principal to require performance

According to Section 231, if an agent makes a contract with a person who neither knows, nor has
reason to suspect that he is an agent, his principal may require the performance of the contract.

Right of third person against undisclosed principal

If the principal wants to obtain performance of the contract, he can do so subject to the rights and
obligations between the agent and the third person. When the third person is innocent and ignorant
that the agent was acting for a principal, if the principal wants performance of the contract, the
rights of such third person are protected. Section 232 contains the following provision in this regard :

“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 rights and obligations subsisting between the agent and the other party
to the contract.

Illustration

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.”
So far as the third person is concerned, according to Section 231, he has, as against the principal, the
same rights as he would have had against the agent if the agent had been the principal. If, however,
the principal discloses himself before the contract is completed, then the other contracting party
may refuse to fulfil the contract if he can show that, if he had known who was the principal in the
contract, or if he had known that the agent was not a principal, he would not have entered into the
contract.

(3) When the principal, though disclosed, cannot be sued

Another exceptional situation, when the agent is presumed to have agreed to be personally liable, as
provided in Section 230, cl. (3) is “where the principal, though disclosed, cannot be sued.”

When the principal is incompetent to contract, e.g., he is a minor, a contract entered into on his
behalf cannot be enforced against him. In such a case, the agent is personally liable in respect of that
contract. Similarly, if the directors of a company which has yet to be formed, make a contract on
behalf of the non-existent company, they incur personal liability.( Kelner v. Baxter, (1866) 2 C.P. 174)

This provision does not create the liability of an agent, if the principal, who cannot be sued, has
entered into a contract directly with the third person. It covers only such cases where the agent
enters into a contract on behalf of a principal, and he discloses the name of the principal, but the
principal cannot be sued. The decision of Union of India v. Chinoy Chablani & Co. A.I.R. 1982 Cal.
365, explains the point.

In Union of India v. Chinoy Chablani & Co. A.I.R. 1982 Cal. 365, on behalf of the plaintiffs, i.e., the
Union of India, the Mineral and Metal Corporation of India Ltd. made an agreement with the Black
Sea Steamship Company of U.S.S.R., whereby the said shipping company agreed to carry a
consignment of some fertilizers from the port of Odessa in U.S.S.R. to any port in India. The
respondents, i.e., Chinoy Chablani & Co., were the steamer agents in Calcutta for discharging the said
consignment. When the cargo was discharged, certain bags containing the fertilizers were found cut
and torn and certain quantities contained sweepings only. This loss to the plaintiffs had occurred due
to the negligence and wrongful acts of the carriers. The plaintiffs sought to claim a sum of Rs. 73,285
as damages from the respondents, i.e., the Steamer Agents, and contended that since the Shipping
Company belonged to the Soviet Government and the same could not be sued in India, the agents of
the Shipping Company in India should be liable for the same under Section 230, clause (3). It was
held that in order to make the agent liable under this provision, the first prerequisite is that there
must be a contract entered into by an agent on behalf of the principal. Since in this case, the contract
had been entered into by the principal (Shipping Company) with the Union of India directly, the
question of liability of Shipping Agents did not arise, and they were not liable for the same. It was
observed that clauses (1), (2) and (3) of Section 230 should be read together and just as in clauses (1)
and (2), it is clearly mentioned that such a liability of the agent arises when he enters into a contract
on behalf of the principal, the same is necessary under clause (3) also.

(4) When there is a contract for the agent’s personal liability

Section 230 which provides that an agent can neither enforce a contract nor is personally liable for
the same begins with the words “in the absence of any contract to that effect.” It means that
whenever there is a contract indicating agent’s personal liability, he can be made personally liable.
The above mentioned three exceptional situations when the personal liability of the agent arises are
mere presumptions when the agent is deemed to have agreed to be personally liable. These
situations are not exhaustive. There may be many other cases also where it may be shown that the
agent agreed to be personally liable. In Alliance Mills v. India Cements Ltd. A.I.R. 1989 Cal. 59, the
agent entered into a contract for the purchase of goods in his own name describing himself as the
purchaser. He did not disclose that he was acting as an agent. The contract note itself cast all
obligations on the purchaser. It was held that in such a situation, the agent could personally enforce
the contract, and also could be made personally liable for the same.

(5) When an agent makes a breach of some legal obligation

When there is some legal obligation such as contractual obligation or a statutory duty cast upon the
agent, he must fulfil the same, otherwise he renders himself personally liable for the breach of such
an obligation. Similarly, when the agent commits a tort against a third person, that also creates his
personal liability for the consequence thereof. In Nepal Food Corporation v. U.P. Import & Export
Ltd. A.I.R. 1988 Cal. 243, the plaintiff loaded rice in a vessel for carriage by sea. The agent of the
owner of the ship who was under a contractual as well as statutory obligation to issue the bill of
lading withheld the same. It was held that by doing so, the agent had not only made a breach of his
contractual duties but also committed the tort of conversion. He along with his principal, i.e., the
ship owner was held to be liable for damage in respect of the loss suffered by the consignor as a
consequence of the delay in the issue of the bill of lading.

(6) Liability of pretended agent

When an agent having no authority to act as an agent does so, the person on whose behalf the act is
done, i.e., the principal has option either to disown the act or to ratify the same. If the act is ratified,
the same effects will follow as if the act had been done by prior authority.( Section 196)

If, however, the principal disowns the act, i.e., he does not ratify the same, the pretended agent
himself will be liable. Section 235, which contains a provision in this regard, is as follows:

“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.”

When an agent having certain amount of authority, goes beyond the authority conferred upon him,
and the third person is misled to believe that the agent has an authority for the act he is doing, then
also the agent can be made personally liable for the breach of warranty of authority. The agent is
also liable to compensate the principal for the loss suffered by him due to such unauthorized act of
the agent.

In Krishan Kant v. Dilip Kumar AIR 2014 Raj 27, the plaintiff had purchased a parcel of land belonging
to the defendant No. 1 through defendant No. 2, generally authorised to sell property of defendant
No. 1. He had already sold some parcels of land belonging to defendant No. 1, holding special power
of attorney. As far the suit property no such power of attorney was given but the defendant No. 2
continued assuring the plaintiff that a formal sale-deed would be duly registered on obtaining a
power of attorney by defendant No. 2 from defendant No. 1, who at the relevant time was residing in
USA.

Since no power of attorney was given by defendant No. 1 to defendant No. 2, the Rajasthan High
Court held that there being no privity of contract between the owner and the vendee, the vendee
was held not entitled to relief of specific performance. The defendant No. 2 was held having no
implied or ostensible or apparent authority to execute the sale, was held to be liable to make
compensation to the plaintiff in respect of any loss or damage which he had incurred under the
agreement under Section 235 of the Indian Contract Act, 1872.
Option of the third person to sue the agent or principal

According to Section 233, 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. For instance, 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.

Estoppel against third person

It has been noted above that in certain cases, a third person gets an option to sue either the
principal, or the agent, or both of them. This rule is subject to an exception when the third person
agrees that he will make only one of them liable and not the other. If he induced such a belief, he is
bound thereby. Section 234 contains the following provision in this regard:

“234. Consequences 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.”

7) Agent guilty of Fraud [Sec.238]: Where an Agent is guilty of fraud or misrepresentation in matters
that are outside the scope of his authority, he is personally liable, and do not affect his Principal.

8) Trade custom or usage: Where trade usage or custom makes an Agent personally liable.

Agent with special interest: An Agent with special interest or with a beneficial interest, e.g., a Factor
or Auctioneer, can sue and be sued personally.