Personal Liability of Agents entering into Contracts

Personal Liability of Agents entering into Contracts

An agent is not personally liable for the contracts entered into by him on behalf of his principal unless there is a contract to the contrary. Such a contract is presumed in the following circumstances.

Personal liability of agents entering into contracts

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1. Where the Agent Acts for a Foreign Principal: When an agent contracts for the sale or purchase of goods for the’principal residing abroad, the agent is personally liable for such contracts. However, the agent can exclude his personal liability by expressly providing in the contract not to incur personal liability.

2. Where the Agent Acts for an Undisclosed Principal: Where the agent acts for an undisclosed principal, he is personally liable on the contracts. But where the agent discloses that he is only an agent or the third party knows that he is acting as an agent of another, then the agent is not personally liable.

3. Where the Agent Acts for an Incompetent Principal: When the agent contracts for a principal who is not competent to contract such as minors, persons of unsound mind etc., the agent is personally liable on the contracts.

4. Where the Agent Acts for a Non-existing Principal: Where the agent acts for a principal who is non-existent, the agent is personally liable on the contracts. For instance, the promoters, contracting on behalf of the company, which is yet to be incorporated, are personally liable.

5. Where the Agent’s Authority is Coupled with Interest: Where an agent has an interest in the subject-matter of the contract, his agency is said to be coupled with interest. In such a case, the agent is personally liable to the extent of his interest in the contract. He can also enforce the contract to the extent of his own interest.

6. Where an Agent Receives or Pays Money by Mistake or Fraud: Where an agent receives some money from a third party by mistake or fraud, he is personally liable to the third person for the refund of such money. Likewise, if he pays some money to a third party by mistake or fraud, he can recover it back from the person to whom it has been paid.

7. Where the Contract Expressly Provides: If at the time of entering into a contract with a third party, it is expressly agreed that the agent shall be personally liable for the contract, the agent incurs personal liability.

8. Where the Agent Signs the Negotiable Instruments in his own Name: If an agent signs the negotiable instruments such as Promissory Note, Bill of Exchange or Cheque, without disclosing that he signs as agent, he incurs personal liability on the instrument.

9. Where the Trade Usage or Customs makes him Personally Liable: Sometimes, the trade usage or customs of a particular trade provide that the agent shall be personally liable for the contract. In such cases, the agent incurs personal liability.

10. Where the Agent Contracts in Excess of his Authority: Where the agent contracts exceeding his authority, he is liable to third party for any loss caused to him.

11. Pretended Agent: A pretended agent is a person who represents himself to be an agent of another, when in fact he has no authority from him whatsoever. When a person pretends to act as an agent of another, the principal may ratify the acts of the agent, and protect him from liability. But if the principal refuses to ratify the acts of the agent, the latter becomes personally liable for any loss or damage caused to him to the third party.

Example: A borrowed money from B, as agent of D. B believed him to be so. But this was not true. It was held that A was liable to B.

Where a person contracts as agent, he is not entitled to require the performance of it provided he was in reality acting not as agent, but on his own account.

Example: A in the character of agent for B enters into an agreement with C, to buy C’s house. A is in reality acting not as agent for B but on his own account. A cannot enforce the performance of the contract.

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