Disclosed Principal Who Cannot be Sued

[leaglesamiksha]

Section 230 of the Indian Contract Act, 1872 establishes the general rule that agents cannot be held personally liable for the contracts entered into by him on behalf of the principal in absence of a contract to the contrary. The statutory provision also provides that a contract to that effect will be presumed under three circumstances, one of them being when the principal though disclosed cannot be sued.
Ques: What does Section 230(3) of the Indian Contract Act, 1872 mean about disclosed principal who cannot be sued?

Topic

[Intern]

To understand the clause, it is important to look at the clause in the light of the neighbouring provisions. Under section 227 if the agent exceeds their scope of authority, the principal will not be liable for such acts of the agent. Section 228 provides that in case the act that falls within the scope of authority of the agent can be separated from what is beyond it, the principal is only bound by that which is an authorised act; Section 229 on the other hand provides that in case the act that falls within the scope of authority and that which is beyond it cannot be separated the principal cannot be liable. So, a disclosed principal cannot be sued if the two acts are not separable as under Section 229 and Section 227 if the act of the agent isn’t authorised or is beyond his course of employment or the agent acts in personal capacity as under Section 236. Furthermore, if a person untruly represents himself as an authorised agent and deals with a third party in that respect and his alleged employer refuses to ratify his acts, such person, under Section 235 is personally liable, this is another instance when a disclosed principal cannot be sued.
In the case of Chatturbhuj Vithaldas Jasani v Moreshwar Parashram and Ors., the court held that the contract is not properly drafted and thus the principal cannot be sued and to ratify a government contract is up to the government if the same is for the benefit. If the government doesn’t ratify the same, the principal in that case though disclosed cannot be sued. The statutory provision in this case was seen as a means to safeguard the government from unauthorised contracts or those that are in excess of authority. The observations of the court in this case with respect to the application of Section 230(3) of the Indian Contract Act emanated from J.K. Gas Plant Manufacturing Co. Ltd. V King Emperor where the court opined that inconvenience and injustice to innocent persons and simultaneously safeguard the Government.
Thus, the essence of the third clause in the stated provision is in the neighbouring sections namely Section 227, 228, 229, 235, 236 of the Indian Contract Act.

[Intern]

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 case,
where the principal, though disclosed, cannot be sued.
Meaning:
The term disclosed principal means, A principal whose identity is known to the third party at the
time the agent makes a contract for the principal with that third party. Section 230(3) of the Act suggests that when the principal is disclosed and the principal cannot be sued. And then there is a
presumption that the agent is personally liable According to this act. If it is satisfied then Section
233 of the Contract Act gives the option to the party to sue as the agent/principal and both. But,
the condition precedent is that the case should fall under Section 230(3) of the Contract Act.
Therefore, what is important here is that it must be established that the principal cannot be sued
in this particular matter.

In Travancore National Bank Subsidiary Co., Ltd.(in liquidation) and another, [1943(1) MLJ
425], the principal being an unregistered union cannot be sued, the Court held that by virtue of
Section 230(3) of the Contract Act agent can be made personally liable.

[leaglesamiksha]

Under Section 230 of the Indian Contract act it is specified that the Agent cannot enforce or be personally bound by contracts entered on behalf of the principal, with certain exceptions to the contrary. One such exception under 230(3) states that the principal cannot be sued, though his existence is disclosed to the third party. To back this, there are a few relevant sections in Chapter X AGENCY. Following the chronology of the sections first in line is Sec. 193 which says, it’s the agent’s responsibility if he appoints a sub-agent outside his authority, eg. if A is the agent of B and A, outside his authority has appointed C as a sub-agent, the mistake of C will be liable to A for its correction or suit and not B the principle. Next is Sec. 215, under which the principal has a right to repudiate the transaction if it comes to his knowledge that the agent has dishonestly concealed material facts from him. Further under sec. 224 If the principal has instructed the agent to follow a criminal activity, the principal does not hold any liability of the consequences of the said act. Eg, B the principal instructs A to publish a defamatory article against C in their newspaper and agrees to take the burden of damages incurred. C sues A, but B is not liable for the act. Taking two sections together i.e. sec 227 and 228 which talks about separation of authority. If the agent exceeds his authority to a point which is separable, the principal is bound but if the authority is exercised outside the given power the principal is not liable and the agent is personally responsible, respectively. Sec. 238 states that the misrepresentation by agent to the principal results in making the contract void between principal and agent. The repercussions of the same will be upon the agent alone. Another reason why the principal cant be sued can be that he is incompetent or a minor.

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