Section 230 (Agency) of the Indian Contract Act, 1872

A contract is an agreement between private parties or individuals that create mutual obligations, which are legally enforceable. Mutual assent, expressed by a valid offer and acceptance, adequate consideration, legality, and capacity are the basic elements required for an agreement to be legally enforceable. Contracts are legally enforceable promises.  And whenever a promise is not fulfilled, the affected party can sue for compensation for the damages suffered. 

The Indian Contract Act, 1872 is the key act that regulates the Indian contract law. It establishes the conditions under which commitments made by contracting parties are legally enforceable. Under section 2(h) of the Indian Contract Act, 1872, “An agreement enforceable by law is a contract.” 

Chapter X of the Indian Contract Act, 1872 deals with the laws pertaining to the agency. 

The relationship between two parties, where one party delegates certain authority to another and the latter acts in a more or less autonomous manner on behalf of the first party, is known as agency. It is possible to have explicit or implicit agency.

The law of agency is based on the Latin maxim “Qui facit per alium, facit per se”, which means, he who acts through another is deemed in law to do it himself. 

Section 230, under Chapter X of the Indian Contract Act, 1872, deals with the personal liability of the agent. The section states that: “on behalf of the principal, the agent cannot directly enforce or be obligated by contracts”.

When a contract of agency is made, the work of an agent is to establish contractual relations with the principal and the third party. After this, the role of the agent in that contract ceases to exist. Only the principal is responsible and liable for any activity, discrepancy, or any other shortcomings related thereto. An agent can neither sue nor be sued on contracts made by him on the behalf of its principal. The rule applies even if the agent makes a fraud contract on behalf of the principal, knowing that he has no authority over it. Even in that case, he cannot be sued on the contract if it is professedly made by him merely in his capacity as agent. 

In Marine Container Services South Ltd. v. Go Go Garments (1998), it was held by the court that an agent, against whom there was a complaint under Consumer Protection Act, 1986, for deficient services, is entitled to the defense of immunity and that defence could not be brushed aside without due consideration.

In another case of Port of Madras v. Southern Shipping Corpn 2001, a consignment landed from the ship and the consignee failed to receive the goods, the question before the court was who is liable to pay the damage. The court held that the liability to pay will be of the consignee and not the shipping agent.

Thus, it can be established that the agent is out of the equation and can be absolved in a matter concerning the contract agreement which the agent has facilitated between the principal and the third party. This is also known as the principle of Agent’s immunity as it protects the agent from being sued in a contract if the agent has acted according to the will of the principal.

There are instances, though, in which the personal liability of an agent is assumed. They are known as ‘Presumption to the Contrary’.

Following are the three instances provided in Section 230 of the Indian Contract Act, 1872, which calls for agent’s liability;

Such a contract shall be presumed to exist in the following cases:

  • Where the contract is made by an agent for the sale or purchase of goods

for a merchant resident abroad (foreign principal);

  • Where the agent does not disclose the name of his principal;
  • Where the principal, though disclosed, cannot be sued.

Following are the explanations for all the three cases:

1.Foreign Principal:

When an agent contracts for a merchant or principal residing abroad, it is presumed that agent undertakes personal liability. The original presumption of English law was that the agent alone was liable and he had no right to pledge the credit of a foreign principal.

In the case, Tutika Basavraju v Parry & Co, ILR (1904), for a company which was registered in England, and also had a business in India, it was held to be a Foreign Principal and the Indian agent acting for the company was held personally liable.

2.Principle Unnamed:

The presumption or the liability of the agent arises when the agent does not disclose the name of the principal. When an agent contracts on behalf on an undisclosed principle, he is personally liable. In Castrol Ltd. v Admiral Shipping Ltd., (2005) 3 Bom CR 507, an agent, who placed all the orders and accepted all the bills without disclosing that he was acting on behalf of a principal, was held personally liable.

3.Non-existent or Incompetent Principal:

An agent is presumed to incur personal liability if he contracts on behalf of a principal who, though has been disclosed but cannot be sued. An agent who contracts on behalf of a minor is personally liable as the minor cannot be sued. Although, the agent will not be liable if the other party already knows that the principal is a minor. This can be seen in the case of Shet Manibai v Bai Rupaliba, ILR (1899) 24 BOM 160.

Aishwarya Says:

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