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This article is written by Senjyoti Howlader pursuing a Certificate Course in Advanced Commercial Contract Drafting, Negotiation & Dispute Resolution. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho). 

This article has been published by Sneha Mahawar.

Introduction

The Indian Contract Act, 1872, Section 182 defines an “agent” as a person employed to do any act for another or to represent another in dealings with third parties. The person for whom such an act is done, or who is so represented, is called the “principal”. In the case of P. Krishna Bhatta v Mundila Ganapathi Bhatta, Ramaswami J of the Madras High Court has further explained the concept of agency as “In legal phraseology, every person who acts for another is not an agent.” It is only when he acts as the other’s representative in business negotiations, that is, when contractual obligations between that other and third parties are created, modified, or terminated. Representative character and derivative authority may briefly be said to be the distinguishing features of an agent. 

In a contract agency, an agent is a person hired to create a relationship between his principal and the agent. The agent cannot directly enforce the contract, nor is he personally accountable for the contract unless the contract expressly states otherwise. In this article, we will discuss the personal liability of agents.

Agency under Contract Law

Chapter 10 of the Indian Contracts Act, 1872, deals with the agency, wherein:

  • Section 230 says that an agent cannot personally enforce, nor be bound by, contracts on behalf of a principal.
  • Section 231 discusses the rights of parties to a contract made by an agent not disclosed. 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; but the other contracting party has, as against the principal, the same rights as he would have had as against the agent if the agent had been principal.
  • Section 235 talks about the liability of a pretended agent. If his purported employer does not confirm his activities, a person falsely portraying himself as an authorized agent of another and enticing a third party to deal with him as such an agent is obliged to compensate the other for any loss or harm he has received as a result of such dealing.
  • Section 236 discusses that if a person falsely contracting as an agent is not entitled to performance, “A person who entered into a contract in the capacity of an agent is not allowed to demand its fulfillment if he was acting on his own behalf.” 
  • Section 188 of the Act mentions the extent of an agent’s authority. An agent having the authority to do an act has the authority to do every lawful thing which is necessary in order to do such an act.

Any authorised thing necessary for the purpose of conducting such a business, or commonly done in the course of such a business, is permissible for an agent with the power to carry on a business.

Illustrations

B, who lives in London, hires A to reclaim a debt owed to B in Bombay. A may take whatever legal action is necessary to recover the debt and, in the process, may grant a lawful discharge.

The primary premise of agency, as we’ve seen, is that the agent works on behalf of his principal and, hence, cannot personally enforce the contract. Likewise, he is not personally liable for any of the behavior. Unless there is a contract to the contrary, 

An agent is not personally accountable for the contracts he enters into on behalf of his principal. Because an agent is only a conduit between his principal and a third party, he cannot, in most cases, personally enforce contracts entered into on his principal’s behalf, nor can he be held personally accountable for such contracts in the absence of a written agreement to the contrary.

An agent is, however, personally liable in the following cases:

  1. When a person enters into a contract with an agent, he may specifically indicate that if the contract is breached, he may hold the agent personally accountable. If the agent agrees, he is personally liable.
  2. When the agent acts for a foreign principal—when an agent makes a contract for the sale or purchase of commodities on behalf of a merchant based overseas, the agent is personally accountable. He can limit his personal culpability by including a clause in the contract that expressly states so. If he does so, he cannot be sued for breach of contract.

In the case of Delhi Express Travels Pvt. Ltd. v. International Air Transport Association and Others, it was held that a contract making the agent personally liable has to be presumed to exist where the principal is residing abroad and/or where the principal, though disclosed, cannot be sued.

  1. When the agent acts for an undisclosed principal—when an agent acts for an unknown principal, he is individually accountable, albeit the principal is equally liable if the principal is found by a third party.
  2. When the agent acts as a principal who cannot be sued, when the principal is unable to enter into a contract, such as when the principal is a minor or an imbecile, the agent is held personally accountable since credit is assumed to have been given to the agent rather than the principal.

In the case of Union of India v. Chinoy Chablani & Co., AIR 1982 Cal. 365, on behalf of the plaintiff, i.e., Union of India, the Mineral and Metal Corporation of India Ltd. made an agreement with the Black Sea Steamship Company of the USSR. Under the agreement, the Shipping Company of the USSR agreed to carry a consignment of some fertilisers from the port of Odessa in the USSR to any port in India. The respondent, i.e., Chinoy Chablani & Co., were the steamer agents in Calcutta for discharging the said consignment. When the cargo was discharged, certain bags containing fertiliser were found cut and torn, and certain quantities were swept only. This loss to the plaintiff (Union of India) occurred due to the wrongful acts of the carriers. The plaintiff brought an action against the steamer agents (Chinoy Chablani & Co.) for claiming damages of Rs. 73, 285. It was contended by the plaintiff that since the shipping company belonged to the USSR 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 the 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 the liability of shipping agents did not arise, and they were not liable for the same.

  1. Unless a country’s purpose is readily apparent from the body of the instrument, an agent who signs a contract in his own name without a qualifier, despite being known to be an agent, is assumed to have contracted personally.
  2. Where he acts for a principal who is non-existent, this is an unusual situation. Even though the purported principal (i.e., the company) has no legal existence until the moment of incorporation, the promoters of a business that has yet to be formed occasionally enter into contracts on behalf of the firm. In this instance, the promoters are considered to have entered into the contract on their own behalf and are personally accountable.
  3. Where he is liable for breach of warranty—in a lawsuit brought by the third party with whom he pretended to form the contract, a person who claimed to serve as an agent but had no authorization from the supposed principal or exceeded his power is personally responsible for breach of warranty of authority.
  4. Where he receives or pays money by mistake or fraud, an agent is personally accountable to third parties if he gets money from a third party by error or fraud. Similarly, he has the right to sue a third party for the recovery of money he has paid by mistake or under the guise of a third party’s fraud.
  5. Where his authority is coupled with an interest – when an agent’s authority is linked with an interest in the subject matter of a contract he enters into with a third party, he has the right to sue, or be sued, but only for the amount of that interest in the subject matter.
  6. Where the trade usage or custom makes him personally liable—where there is a trade usage or a custom making him personally liable, he is liable if there is a contract with the country.
  7. Pretended Agent: A feigned agent is someone who pretends to be an agent for someone else when he actually has no control over them. When someone pretends to be someone else’s agent, the principal may endorse the agent’s actions and shield him from accountability. However, if the principal refuses to authorize the agent’s actions, the latter is solely accountable for any loss or harm he causes to a third party.

As an example, A borrowed money from B as D’s agent. B was certain that he was. However, this was not the case. A was found to be responsible for B. When a person contracts as an agent, he is not allowed to demand that the contract be fulfilled unless he was acting on his own behalf.

A, in the role of B’s representative, enters into an agreement with C to purchase C’s home. In truth, A is operating on his own behalf, not as an agent for B. The contract’s fulfillment cannot be enforced.

In the case of Aa Bee Resort and Travel Pvt. Ltd. v. Om Prakash Palia, decided by the Delhi State Consumer Disputes Redressal Commission, wherein it has been held that the liability of the agent booking the ticket The agent had sold the ticket on behalf of the airline as its booking agent. Agents here cannot escape this liability.

Again, in the case of Air India and others v. Ranjot Singh and Ors., wherein it has been held that Singapore Airlines, being the agent of Ops No. 1 and 2, cannot escape their liability, A principal cannot escape his liability for the omission and commission of an act of his agent. 

Termination of agency 

Termination of an agency may take place in two ways:

  1. The Application of the Law
  2. Parties’ Act

An agency can be terminated by operation of law in any of the following cases:

  1. Performance of the Contract
  2. Expiry of Time
  3. Either Party’s Death or Insanity
  4. Insolvency of the Principal
  5. Destruction of Subject-Matter 
  6. The principal becomes an enemy alien.
  7. Dissolution of a Company
  8. Termination of Sub-Agent’s Authority
  9. Subsequent events Making the Agency Unlawful

An agency can be terminated by any of the following actions taken by the parties:

  1. Mutual Agreement

For example, in order to collect the amount loaned to C and D, A designated B as his agent. The amount that was loaned to C was collected by B. As a result, A and B agreed to part ways with their agency connection. The agency is shutting down here. 

     2.  Revocation of the Agent’s Authority by the Principal

D was appointed by A to act as his agent for the acquisition of certain products. A may cancel D’s authorization at any point before he acquires the products. However, the following requirements must be met before the agent’s authorization can be revoked:

  1. If the agent has only partially utilized his power, the principal may remove the agent’s authority solely for future acts.
  2. If the agency is established for a specific period of time, the principal may withdraw it before the end of that period if there is a good reason.
  3. If the agency is constituted for a set amount of time or for an indefinite period of time, the principal must provide the agent with adequate notice of the termination of the agency.
  4. If the agent has an interest in the subject matter, the agency can only be terminated if there is an express contract that allows it.
  5. The Agent’s Revocation

After providing the principal with sufficient notice, the agent may renounce the agency business. If the agency contract is for a set amount of time, the agent must compensate the principal for the earlier termination of the agency activity.

Conclusion

Though a person is always liable for her own torts, an agent who commits one is also liable; if the tort was committed in the course of employment, the principal is also liable. Unless the principal encouraged the agent to conduct the tort, the agent must compensate the principal. In most cases, an agent is not accountable for contracts made; instead, the principal is liable. However, if the agent is not or only partially disclosed, if the agent lacks or exceeds authorization, or, of course, if the agent entered into the contract in his or her personal capacity, the agent will be held liable.

Agencies end either explicitly or implicitly, or through the operation of the law. The principal’s revocation or the agent’s renunciation, or the terms of the agreement or mutual consent, or the principal’s revocation or mutual consent, a variety of scenarios exist in which it is plausible to believe that one or both parties do not want the connection to continue, and therefore an agency terminates implicitly. When one of the parties dies or becomes incompetent, or if the agency’s object becomes illegal, the agency will be terminated by the operation of law. However, because an agent may appear to have residual authority, the principal should warn anybody who might deal with the agent after the agency is terminated.


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