Sections 232 and 233 of Indian Contract Act 1872: Undisclosed Principal and Personal Liability of Agent
Sections 232 and 233 form part of the law of agency under the Indian Contract Act, 1872. They deal with the rights of a third party where an agent contracts without the third party knowing that the person is acting as an agent, and with the remedies available where the agent is personally liable.
The Indian Contract Act, 1872 is Central Act No. 9 of 1872. It was enacted on 25 April 1872 and came into force on 1 September 1872. Sections 232 and 233 continue to appear in the current official text of the Act.
Section 232 - Performance of contract with agent supposed to be principal
Meaning: Section 232 applies when one person contracts with another without knowing, and without reasonable ground to suspect, that the other person is acting as an agent. If the undisclosed principal later requires performance of that contract, the principal takes the contract subject to the rights and obligations already existing between the agent and the third party.
232. Where one man makes a contract with another, neither knowing nor having reasonable ground to suspect that the other is an agent, the principal, if he requires the performance of the contract, can only obtain such performance subject to the rights and obligations subsisting between the agent and the other party to the contract.
A, who owes 500 rupees 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.
Legal effect of Section 232
The section protects a person who entered into the contract on the reasonable understanding that the agent was contracting as principal. The undisclosed principal cannot ordinarily demand performance while ignoring rights that had already arisen in favour of the third party against the agent in relation to the contractual position contemplated by the section.
Section 233 - Right of person dealing with agent personally liable
Meaning: Section 233 deals with cases in which the agent is personally liable. It gives the person dealing with that agent the option to hold the agent, the principal, or both liable, subject to the facts and the applicable rules governing the agent's personal liability.
233. In cases where the agent is personally liable, a person dealing with him may hold either him or his principal, or both of them, liable.
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.
When Section 233 becomes relevant
Section 233 does not by itself make every agent personally liable. It operates where personal liability of the agent exists under the contract or the applicable provisions of agency law. Section 230 is therefore an important related provision because it states the general rule concerning an agent's personal enforcement of, and liability on, contracts made on behalf of a principal and also identifies circumstances in which a contract to the contrary is presumed.
Difference between Sections 232 and 233
Section 232 primarily protects the contractual rights of a third party when the principal was undisclosed at the time of contracting. Section 233 addresses the choice of persons against whom liability may be enforced when the agent is personally liable. Read with Sections 230 and 231, these provisions regulate important consequences of disclosed and undisclosed agency.
Related provisions on contracts made through agents
For a complete understanding of these provisions, the surrounding sections should also be considered. Sections 230 and 231 deal with an agent's personal liability and the rights of parties where the principal is not disclosed. Sections 234 and 235 deal with election between principal and agent and liability of a pretended agent.
Official source
The authoritative consolidated text of the Indian Contract Act, 1872 can be checked on the Government of India's India Code portal. Readers should verify the current statutory text and any applicable amendments before relying on a provision for litigation, drafting or legal advice.
India Code - The Indian Contract Act, 1872
This article is for general legal information. Application of agency law depends on the contract, disclosure of the principal, authority of the agent and the facts of each transaction.