Page 72 - DMGT407Corporate and Business Laws

Unit 3: Contracts of Bailment and Agency

existence of the principal and regard the agent as the person contracting for himself. The third Notes
parties, thus, must look to the agent for payment or performance and the agent may sue or be
sued on the contract. Legal position in this regard is as follows:
1. If the principal wishes to intervene, he may require the performance of the contract, but
the other party has, as against him (principal), the same rights as he would have had as
against the agent if the agent has been principal (s.231 para 1).
2. Para II of s.231 provides that in such a case, if the principal discloses himself before the
contract is completed 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 the principal, he would not have entered into the contract.
3. If the principal requires performance of the contract, he can only obtain such performance
subject to the rights and obligations subsisting between the agent and the other party to
the contract.

Example: A who owes ` 500 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.
4. In contracts with a concealed principal, the agent is, in the absence of a contract to the
contrary, personally liable to the third party. The party may hold either the agent or
principal or both liable (s.223).

Example: 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.

Self Assessment

Fill in the blanks:
11. The principal is liable for the acts of the agent falling not only within the actual authority
but also within the scope of his ……………...authority.
12. Section …………. provides an option to the third parties to either sue the principal or
agent or both.

3.7 Personal Liability of Agent

Agent is only a connecting link between the principal and third parties. Being only a medium,
he can, in the absence of a contract to the contrary, neither personally enforce contracts entered
into by him on behalf of his principal, nor is he personally bound by them (s.230).
From the above discussion, it may be inferred that agent can enforce contracts personally and be
held bound for contracts entered into on behalf of his principal, if there is an agreement to the
effect, express or implied. Section 230 enlists the following cases where a contract to this effect
shall be presumed to exist: (1) where the contract is made by 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, for instance, where principal
is a minor. Besides, agent incurs a personal liability in the following cases:
1. Breach of warranty. Where agent acts either without any authority or exceeds his authority,
he is deemed to have committed breach of warranty of authority in such a case. He will be

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