Understanding Section 230 of the Contract Act, 1872.

 

The Contract Act, 1872

Understanding Section 230

Agent cannot personally enforce, nor be bound by, contracts on behalf of principal

230. 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.

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.

Discussion:

The chief function of an agent is to establish contractual relationship between his principal and third parties. The agent then drops out. He can neither sur nor be sued on contracts made by him on his principal’s behalf.

   This is known as the principle of the agent’s immunity from personal liability. This rule applies even where the agent has contracted beyond his authority and the principal would not be liable. Even then the agent cannot be sued on the contract if he professed to act for the principal, though he will then be liable to compensate the third party for his loss.

    But there are certain circumstances in which the agent incurs personal liability. Section 230 of the Contract Act, 1872 which incorporates the principle of agent’s immunity for personal liability, says that there may be a contract to the contrary. In other words, the agent may contract to undertake personal liability. The section further goes on to provide that such contract is presumed in the following cases:

Presumption of contrary contract

In the following cases there is a presumption of a contract to the contrary:

1. Foreign principal: When an agent contracts for “a merchant resident abroad” there is the presumption that the agent undertakes personal liability.

2. Principal unnamed: The presumption of agent’s personal liability arises when he “does not disclose the name of his principal”. Where an agent contracts for an undisclosed principal, he definitely is personally liable, being a party to the contract. But when he contracts for an unnamed principal, there is only a presumption of his personal liability. 

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, the minor being not liable, the agent becomes personally liable. This result may not, however, follow where the other party already knows that the principal is minor.

{Book Reference: AVTAR SINGH’S LAW OF CONTRACT ACT (A Study of the Contract Act,1872) and SPECIFIC RELIEF by RAJESH KAPOOR, Thirteenth Edition, 2022, Reprinted, 2023 Page No.(808-811)}

Prepared By-

Nazmul Hasan,

Senior Judicial Magistrate at Bangladesh Judicial Service.

LL. B (Hons.) First Class First, University of Rajshahi

LL.M First Class, University of Rajshahi

11th BJS (Bangladesh Judicial Service), Merit Position-7th

Member of Youth Delegation Team to India, 2016.

Prime Minister Gold Medalist – 2017.

Bangabandhu Gold Medalist by Agrani Bank – 2023.

Former Executive Member of Rajshahi University Moot Court Society (RUMCS), (2015-2016)