In the law of agency, the general rule of Agent’s Immunity is based on the principle that an agent is merely a "conduit pipe" connecting the Principal and the Third Party. Therefore, an agent is generally not personally liable for the contracts they negotiate on behalf of a disclosed principal.
However, this immunity is not absolute. Under the Indian Contract Act, 1872, there are specific circumstances where the "corporate veil" of agency is lifted, and the agent becomes personally responsible.
1. The Rule of Agent’s Immunity (Section 230)
The primary rule is that in the absence of a contract to the contrary, an agent cannot personally enforce, nor be bound by, contracts entered into on behalf of the principal.
Exceptions: When the Agent is Personally Liable
Section 230 and subsequent provisions outline when an agent loses their immunity:
Foreign Principal: When the agent makes a contract for a principal resident abroad.
Undisclosed Principal: When the agent does not disclose the name of their principal, they can be held personally liable by the third party.
Non-Existent/Incompetent Principal: If an agent acts for a principal who cannot be sued (e.g., a minor or a company not yet incorporated), the agent is personally liable.
Agency Coupled with Interest: When the agent has a personal financial interest in the subject matter of the agency (e.g., an agent authorized to sell a house to recover a debt owed to them by the principal).
Custom of Trade: In certain businesses, trade customs make the agent personally liable (e.g., stockbrokers in specific markets).
Pretended Agent (Section 235): A person untruly representing themselves as the authorized agent of another is liable to compensate the third party for any loss suffered.
Agent signs in their own name: If the agent signs a negotiable instrument (like a cheque) without clearly stating they are signing as an agent.
2. Termination of Agency (Section 201)
An agency relationship can be brought to an end either by the act of the parties or by operation of law.
A. By Act of the Parties
Agreement: Both parties mutually agree to end the relationship.
Revocation by Principal: The principal cancels the agent's authority.
Constraint: Revocation is not possible if the agency is "coupled with interest."
Renunciation by Agent: The agent refuses to act further.
Note: If the agency is for a fixed term, the agent may have to compensate the principal for premature renunciation.
B. By Operation of Law
Completion of Business: The specific task for which the agency was created is finished.
Expiry of Time: If the agency was created for a specific duration, it ends when that time passes.
Death or Insanity: The death or mental incapacity of either the principal or the agent automatically terminates the agency.
Insolvency of Principal: If the principal is adjudicated insolvent, the agency ends.
Destruction of Subject Matter: If the thing the agent was supposed to deal with is destroyed (e.g., an agent hired to sell a house that burns down).
3. Irrevocable Agency
As a critical note, an agency cannot be terminated at the whim of the principal if:
Section 202: The agent has an interest in the property which forms the subject matter of the agency.
Example: A borrower appoints a lender as their agent to sell their land and keep the proceeds to settle the loan. The borrower cannot revoke this agency until the debt is paid.
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