CA Foundation Solutions For Business Laws – Agency

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Agency Multiple Choice Question

Question 1. Principal is a

  1. A person employed to do any act for another or to represent in dealings with a third person
  2. The person for whom the act is done or who is so represented in dealings with third “persons
  3. A person from whom, the person employed to do any act, has to get the work done
  4. All the above.

Answer: 2. Person employed to do any act for another or to represent in dealings with a third person.

Question 2. _______ is the relationship between two persons where one person is employed by another to act on behalf of another with the third person.

  1. Agency
  2. Bailment
  3. Indemnity
  4. Guarantee

Answer: 1. Agency

Question 3. Amongst the following who is an agent

  1. A domestic servant
  2. A person aiding another in the performance of his legal or contractual obligations of third persons
  3. A person who kills another’s field
  4. None of the above

Answer: 2. A person aiding another in the performance of his legal or contractual obligations of third persons

Question 4. Who can appoint an agent

  1. A minor of sound mind
  2. A major of sound mind
  3. A person of unsound mind
  4. Both (1) and (2).

Answer: 2. A major of sound mind

Question 5. Agent is a

  1. Berson employed to do any act for another or to represent in dealings with third person
  2. The person for whom the act is done or who is represented in dealings with a third person
  3. A person from whom the person employed to do any act, has to get the work done
  4. All the above.

Answer: 1. Berson employed to do any act for another or to represent in dealings with a third person

Question 6. Who can become an agent

  1. A major of sound mind
  2. A major of unsound mind
  3. A minor of sound mind
  4. A minor of unsound mind.

Answer: 1. A major of sound mind

Question 7. _______ is a person employed to do any act for another, or to represent another in dealing with third persons,

  1. Bailee
  2. An agent
  3. Bailor
  4. Indemnity holder

Answer: 2. An agent

Question 8. Authority of an agent

  1. Has to be expressed
  2. Has to be implied
  3. Can be expressed or implied
  4. Either (1) (2) or (3).

Answer: 3. Can be expressed or implied

Question 9. A contract of agency may be

  1. Express
  2. Implied
  3. (1) or (2)
  4. None of above

Answer: 3. (1) or (2)

Question 10. Agency may also arise by ________.

  1. Estoppel
  2. Necessity
  3. Ratification
  4. All of above

Answer: 4. All of the above

Question 11. No consideration is necessary to create an agency.

  1. True
  2. False
  3. Partly true
  4. None of above

Answer: 1. True

Question 12. A contract of agency may be made _________.

  1. Orally
  2. In writing
  3. (1) or (2)
  4. None of above

Answer: 3. (1) or (2)

Question 13. An authority is said to be ________ when it is to be inferred from the circumstances of the case, and things spoken or written, or the ordinary course of dealings.

  1. Express
  2. Implied
  3. (1) or (2)
  4. None of above

Answer: 2. Implied

Question 14. Where a principal, by his word or conduct, induces some third person to believe that acts or obligations of his agent were within his authority, he shall be estopped from denying it later. This is known as ________.

  1. Agency of necessity
  2. Agency of estoppel
  3. Agency by operation of law
  4. Agency by ratification

Answer: 2. Agency of estoppel

Question 15. A principal cannot deny the agent’s authority when he does some prior positive or affirmative act establishing the agency of the other person. This known as

  1. Agency of necessity
  2. Agency by operation of law
  3. Agency by holding out
  4. Agency by ratification

Answer: 3. Agency by holding out

Question 16. When the husband and wife are living together and the husband does not provide for her necessities, the wife has an implied authority as an agent to pledge her husband’s credit for bare necessities.

  1. False
  2. True
  3. Partly true
  4. None of above

Answer: 2. True

Question 17. The husband will not be liable as an agent if he shows that: _________.

  1. He had told a tradesman to supply goods on credit to his wife.
  2. He had expressly allowed the wife to pledge his credit
  3. His wife was already sufficiently supplied with the articles in question.
  4. All of above

Answer: 3. His wife was already sufficiently supplied with the articles in question.

Question 18. In certain circumstances, a person who has been entrusted with another’s property may have to incur unauthorised expenses to protect or preserve it. This is known as _______.

  1. Agency of necessity
  2. Agency by operation of law
  3. Agency by holding out
  4. Agency by ratification

Answer: 1. Agency of necessity

Question 19. A horse sent by rail was not delivered to the destination, The Station Master had to feed the horse. The Station Master becomes an ________ and hence the owner shall compensate him.

  1. Agent by necessity
  2. Agent by operation of law
  3. Agent by holding out
  4. Agent by ratification

Answer: 1. Agent by necessity

Question 20. When the relationship arises between, the persons as per provisions of the present applicable laws, it is said to be an _________.

  1. Agency of necessity
  2. Agency by operation of law
  3. Agency by holding out
  4. Agency by ratification

Answer: 2. Agency by operation of law

Question 21. An agent can lawfully employ a sub-agent

  1. Originally
  2. If the ordinary custom of trade permits
  3. If the nature of the agency permits
  4. Both (2) and (3)

Answer: 4. Both (2) and (3)

Question 22. In case of a sub-agent lawfully appointed, which of the following is correct

  1. As regards third parties the sub-agent binds the principal as an original agent can
  2. As regards third parties, the sub-agent cannot bind the principal as an original agent
  3. As regards third parties the sub-agent can bind only the original agent, who has appointed the use-agent
  4. As regards third parties, the sub-agent can neither bind the principal nor the original agent.

Answer: 1. As regards third parties the sub-agent binds the principal as an original agent can

Question 23. For the acts of sub-agent, lawfully appointed

  1. The agent is not responsible to the principal
  2. The agent is responsible to the principal
  3. The sub-agent is responsible to the principal directly
  4. The sub-agent is not responsible to the principal.

Answer: 2. The agent is responsible to the principal

Question 24. In case of fraud and wilful wrong by the sub-agent

  1. The sub-agent is directly liable to the agent
  2. The sub-agent and the agent both are liable to the principal
  3. The agent alone is liable to the principal
  4. Both (1) and (2).

Answer: 4. Both (1) and (2).

Question 25. In case the sub-agent is not lawfully appointed, for the acts of such sub-agent, the agent appointing the sub-agent is liable

  1. Towards the principal only
  2. Towards the third parties only
  3. Towards the principal and third parties both
  4. Towards none

Answer: 3. Towards the principal and third parties both

Question 26. _____is a person employed by, and acting under the control of, the original agent in the business of the agency.

  1. Substituted agent
  2. Sub-agent
  3. Pretended agent
  4. Universal agent

Answer: 2. Sub-agent

Question 27. A person whom the agent names to act for the principal in the business of the agency, under the express or implied authority to name, is called

  1. Sub-agent
  2. Substituted agent
  3. Agent
  4. Procured agent.

Answer: 2. Substituted agent

Question 28. For the acts of the substituted agent

  1. The agent is responsible to the principal
  2. The agent is not responsible to the principal
  3. The substituted agent is not responsible to the principal
  4. None of the above.

Answer: 2. The agent is not responsible to the principal

Question 29. The substituted agent is liable to the principal

  1. Only in case of fraud and wilful default
  2. Irrespective of fraud and wilful default, in all cases
  3. Along with the agent
  4. Both (1) and (3).

Answer: 2. Irrespective of fraud and wilful default, in all cases

Question 30. Where an agent, holding authority to name another person, has named another person accordingly, such person is known as _________ Such agent works under the control and directions of the principal.

  1. Substituted agent
  2. Sub-agent
  3. Pretended agent
  4. Universal agent

Answer: 1. Substituted agent

Question 31. A _______ represents to be an agent of another when in reality he has not such authority from him at all.

  1. Substituted agent
  2. Sub-agent
  3. Pretended agent
  4. Universal agent

Answer: 3. Pretended agent

Question 32. A mercantile agent includes __________

  1. Factors
  2. Brokers
  3. Auctioneers
  4. All of the above

Answer: 4. All of the above

Question 33. A _______ is a mercantile agent employed to sell goods which have been placed in his possession or contract to buy goods for his principal. He is the apparent owner of the goods in his custody and can sell them in his name and receive payment for the goods

  1. Broker
  2. Factor
  3. Del credere agent
  4. Auctioneer

Answer: 2. Factor

Question 34. Any actions done, without the authority or knowledge of a person on behalf of that person,

  1. Can disown the act
  2. Can ratify the act
  3. Either ratify or disown the act
  4. Can disown the act but cannot ratify the same.

Answer: 3. Either ratify or disown the act

Question 35. Ratification of an act

  1. Has to be expressed only
  2. Has to be implied
  3. Can be either expressed or implied
  4. Has to be both expressed and implied.

Answer: 3. Can be either express or implied

Question 36. Which of the following acts cannot be ratified

  1. Lawful or unlawful acts capable of being done by the agent
  2. Where knowledge of facts to the ratifying person is defective
  3. Act which ane unauthorised at the time of its being done
  4. All the above.

Answer: 4. All the above.

Question 37. Where a person having no authority purports to act as an agent or a duly appointed agent exceeds his authority, the principal is not bound by the contract supposedly based on his behalf. But the principal may ratify the agent’s transaction and so accept liability. This is known as ________.

  1. Agency of necessity
  2. Agency by operation of law
  3. Agency by holding out
  4. Agency by ratification

Answer: 4. Agency by ratification

Question 38. Requisites of valid agency by ratification:

  1. The agent must purport to act as an agent for a principal who is in contemplation and is identifiable at the time of the contract.
  2. Principal need not be in existence at the time of contract.
  3. Principals should have contractual capacity at the time of contract but not at the time of ratification.
  4. All of the above.

Answer: 1. The agent must purport to act as an agent for a principal who is in contemplation and is identifiable at the time of the contract.

Question 39. Requisites of valid agency by ratification:

  1. Ratification must be made within 2 years from the date of the act.
  2. Ratification should be done within a reasonable time.
  3. The act to be ratified need not be a lawful one.
  4. All of the above.

Answer: 2. Ratification must be made within 2 years from the date of the act.

Question 40. Requisites of valid agency by ratification:

  1. Ratification can be made for part contract
  2. Ratification need not be communicated to the party who is sought to be bound by an act done by the principal.
  3. Ratification should not put third parties to damages.
  4. None of the above.

Answer: 3. Ratification should not put third parties to damages.

Question 41. Ratification relates to the date of the act of the agent.

  1. False
  2. True
  3. Partly true
  4. None of the above.

Answer: 2. True

Question 42. The agency can be terminated

  1. By revocation by the principal
  2. By notice of renunciation by the agent
  3. By efflux of time
  4. Either (1) or (2).

Answer: 4. Either (1) or (2).

Question 43. Agency stands terminated

  1. By the death, insolvency or insanity of the principal
  2. By the death, insolvency or insanity of the agent
  3. By the death, insolvency or insanity of either the principal or the agent
  4. By the death, insolvency or insanity of the principal and the agent both.

Answer: 3. By the death, insolvency or insanity of either the principal or the agent

Question 44. The principal can revoke the authority given to the agent

  1. At any time before the authority has been exercised
  2. At any time after the authority has been partly exercised without liability towards the acts done
  3. At any time after the authority has been fully exercised
  4. All the above.

Answer: 1. At any time before the authority has been exercised

Question 45. With the termination of the authority of an agent

  1. The authority of the sub-agent or substituted agent does not come to an end
  2. The authority of the sub-agent comes to an end but not of the substituted agent
  3. The authority of the sub-agent does not come to an end but that of a substituted agent
  4. The authority of the sub-agent and substituted agent both comes to an end.

Answer: 2. The authority of the sub-agent comes to an end but not of the substituted agent

Question 46. Duties of an agent: _________

  1. To exercise skill and diligence
  2. To render proper accounts
  3. Communicate with the principal in case of difficulty
  4. All of above

Answer: 4. All of the above

Question 47. Duties of an agent: _________

  1. To deal with his account
  2. To retain with himself all sums received
  3. Not to make secret profits
  4. All of above

Answer: 3. Not to make secret profits

Question 48. Duties of an agent: __________

  1. Not to disclose information
  2. To protect the interest of the principal in case of death
  3. To act as per the principal’s directions
  4. All of the above

Answer: 4. All of the above

Question 49. Duties of an agent: __________

  1. To delegate authority
  2. To protect the interest of the principal in case of death
  3. Not to act as per the principal’s directions
  4. All to above

Answer: 2. To protect the interest of the principal in case of death

Question 50. If the amount due to the agent for commission or remuneration is not paid or accounted for, the agent

  1. Has a right of lien only over the movable property of the principal
  2. Has a right of lien only over the immovable property of the principal
  3. Has a right of lien over the goods, papers and property movable or immovable of the principal
  4. Does not have a right of lien over the papers.

Answer: 3. Has a right of lien over the goods, papers and property movable or immovable of the principal

Question 51. Right of lien, of an agent

  1. Is extinguished by his parting with the possession of the goods
  2. Is extinguished by the destruction of goods accidentally
  3. Both (1) and (2) are correct
  4. Neither (1) nor (2) is correct

Answer: 1. Is extinguished by his parting with the possession of the goods

Question 52. The agent has a right to be indemnified

  1. For all the consequences of all lawful acts done by the agent
  2. For all the consequences of all unlawful acts done in good faith by the agent.
  3. For all the consequences of unlawful acts, known to be unlawful, but not criminal acts
  4. Both (1) and (2)

Answer: 4. Both (1) and (2)

Question 53. Which Of the following rights are not available to the agent

  1. Right to retain
  2. Right to compensation
  3. Right to sell
  4. All the above.

Answer: 3. Right to sell

Question 54. Which of the following rights is available to the agent

  1. Right to remuneration and compensation
  2. Right to retain
  3. Right to indemnity
  4. All the above.

Answer: 4. All the above.

Question 55. When the principal and his name are disclosed to third parties, acts of the agent are acts of the principal:

  1. True
  2. False
  3. Partly true
  4. None of above

Answer: 1. True

Question 56. Where the agent discloses that he is merely an agent but conceals the identity of his principal, he is not personally liable, the principal, on being discovered, will be responsible for the contract made by the agent.

  1. True
  2. False
  3. Partly true
  4. None of above

Answer: 1. True

Question 57. If an agent contracts in the capacity of an agent but the principal’s name is not given then, the principal is not liable for all acts of the agent and the agent will be held personally liable.

  1. True
  2. False
  3. Partly true
  4. None of above

Answer: 2. False

Question 58. In the case of an unnamed principal, if the agent refuses to name the principal, the agent shall be personally liable.

  1. True
  2. False
  3. Partly true
  4. None of above

Answer: 1. True

Question 59. If an agent commits a tort or other wrong (For Example.) misrepresentation or fraud) during his agency, while acting within the scope of his actual or apparent authority, the principal is not liable.

  1. True
  2. False
  3. Partly true
  4. None of above

Answer: 2. False

Question 60. An agent is personally liable: __________

  1. Where the agent has agreed to be personally liable to the third party.
  2. Where an agent acts for a principal residing abroad.
  3. When the agent signs a negotiable instrument in his name without making it clear that he is signing it only as an agent.
  4. All of above

Answer: 4. All of the above

Agency Descriptive Questions And Answers

Question 1. Who is a Sub-agent? When can he be appointed and by whom? State his liabilities towards the principal.

Answer:

Sub-agent

When an agent delegates a part of his authority to another person, this other person is called a sub-agent. He can be appointed by an agent only.

Appointment: As per the general rule, an agent cannot appoint a sub-agent because the root of agency lies in the relationship of confidence and trust, which the principal does not like to share with another person appointed by the agent whom another person appointed by the agent who is unknown to him.

Following are the cases in which an agent may appoint a sub-agent (Section 190 of ICA 1872):

  1. When the principal knows the intention of an agent to appoint a sub-agent.
  2. If there is a custom of trade to that effect.
  3. Where it becomes essential to appoint a sub-agent under unforeseen emergencies.
  4. If the nature of the work makes an appointment necessary.
  5. Where the principal has authorised the agent to appoint a sub-agent.

The sub-agent is responsible for the acts of the agent and not for the principal. In case of fraud or willful wrong, the principal may hold him liable.

Legal Consequences :

  1. If the appointment is proper[See. 192]:
    • The principal is liable to the third party.
    • The agent will be responsible to the principal for the act of the agent.
  2. If the appointment is improper[See. 193]:
    • The principal is not liable to a third party.

Question 2. What tests can be applied in determining whether a person is an agent of another? State any five circumstances whereunder an agent is personally liable to a third party for the acts during the agency.

Answer:

Determining Agency and Agent: The test for determining whethera person is or is not an agent, is to find out whether the person can bind the principal and make him responsible or liable to a third person by bringing him into legal relation with the third person.

An agent can establish a privity of contract between the party and the principal. If all these points are proven then he is an agent otherwise not. The relationship of agency may be created by express or implied agreement.

Circumstances when an agent is personally liable :

  1. Named Principal: When the agent contracts as an agent for a named principal, the principal is:
    • Bound by all the acts of the agent.
    • Liable when the agent exceeds his authority
    • Bound by the notice.
  2. Unnamed Principal: In this case, the principal will be liable for the contract made by the agent unless there is a trade custom making the agent personally liable.
  3. Undisclosed Principal: The agent becomes personally liable and can be sue and be sued in his name.

Personal Liability of Agent:

The general rule is that an agent cannot be made personally liable for the contracts entered into by him on behalf of his principal, neither he is personally bound by them.

The circumstances under which an agent is personally liable for his principal acts are as follows:

  1. When he agrees with the concerned parties (Sec. 230).
  2. An agent who does not have any authority to act as an agent or who has exceeded the authority and the same has not been ratified by the principal, is personally liable for any loss born by a third party (Sec. 235).
  3. A person with whom a contract has been entered into in the character of the agent is not entitled to require the performance of it if, in reality, he was acting not as an agent, but as a principal (Sec. 236).
  4. When he is acting for a foreign principal.
  5. Where the agency is coupled with interest that is the agent has interest in the subject matter of the agency.
  6. When the agent signs a negotiable instrument in his name without making it clear that he is signing as an agent.
  7. Where trade, usage or customs holds him liable in certain kinds of business.
  8. Where the agent acts for a principal who cannot be sued on account of his being a foreign sovereign Ambassador etc.
  9. Where the agents act for an undisclosed principal.

Where a Government Servant enters into a contract on behalf of the Union of India in disregard of Article 299 (1) of the Constitution of India.

Question 3. “An agent is neither personally liable nor can he enforce the contract on behalf of the principal.” Comment.

Answer:

“An agent is neither personally liable nor can he enforce the contract on behalf of the principal.”

As per Section 230 of the Indian Contract Act, of 1872, 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.

Such a contract shall be presumed to exist in the following cases:

  1. Where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad or foreign principal.
  2. Where the agent does not disclose the name of his principal or undisclosed principal; and
  3. Where the principal, though disclosed, cannot be sued.

Question 4. Sunil borrowed a sum of 13 lakh from Rajendra. Sunil. appointed Rajendra as his agent to sell his land and authorized him to appropriate the amount of loan out of the sale proceeds. Afterwards, Sunil revoked the agency. Decide under the provisions of the Indian Contract Act, 1872 whether the revocation of the said agency by Sunil is lawful.

Answer:

An agency is terminated if the Principal revokes the authority of his agent. The Principal may revoke the authority of his agent at any time before the authority has been exercised to bind the Principal.

  • However, as per Sec. 202 of the Indian Contract Act, 1872, the Principal cannot revoke his authority where the Agency Is coupled with interest.
  • An agency is said to be coupled with interest when the object of creating an agency is to secure some benefit for the agent in addition to his remuneration as the agent.
  • Thus, where the agent has an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

Present Case: The revocation of agency by Sunil is not lawful. This is because here Rajendra (Agent) has himself an interest in the property (land) which forms the subject matter of the agency. Thus, this being a case of agency coupled with interest cannot be terminated by revocation of authority.

Question 5. Mr A. of Alwar engaged Mr S as his agent to buy a house. Mr. S bought a house for ₹ 40 lakhs in the name of a nominee and then purchased it himself for ₹ 44 lakhs. He then sold the same house to Mr. A for ₹ 46 lakhs. Mr. A later comes to know about the mischief of Mr. S and tries to recover the excess amount paid to Mr. S. Is he entitled to recover any amount from Mr, S? If so, how much? Explain.

Answer:

Provision:

The relationship of a Principal and his agent is of mutual trust and confidence. As per Sec. 215 of the Indian Contract Act, of 1872, the agent must not deal with his account.

Where an agent without the knowledge of the principal, deals in the business of the agency on his account, the principal may:

  1. Repudiate the transaction, if the case shows, either that the agent has dishonestly concealed any material fact from him, or that the dealings of the agent have been disadvantageous to him.
  2. Claim from the agent any benefit, which may have resulted to him from the transaction.

Present Case:

Mr. S, an agent of Mr. Alwar was appointed to buy a house for Mr. Alwar. However, he bought a house for ₹ 40 lakhs in the name of a nominee and then purchased it himself for ₹ 44 lakhs.

He then sold the same house to Mr Alwar for ₹ 46 lakhs. Later Mr. Alwar came to know about the mischief of Mr. S.

Hence, based on the provision of Sec. 215 (read with Sec. 216), Mr Alwar is entitled to recover ₹ 6 lakhs from Mr S, being the amount of profit earned by Mr S out of the said transaction

Question 6. ABC Ltd. sells its products through some agents and it is not the custom in their business to sell the products on credit. Mr. Pintu, one of the agents sold goods of ABC Ltd. to M/s. Parul Pvt. Ltd. (on credit) which was insolvent at the time of such sale. ABC Ltd. sued Mr Pintu for compensation towards the loss paused due to the sale of products to M/s. Parul Pvt. Ltd. Will ABC Ltd. succeed in its claim?

Answer:

Duty and obligation of an Agent

As per Sec. 211 of the Indian Contract Act 1872, an agent is bound to conduct the business of his principal according to the direction given by the principal, or, in the absence of any such directions.

According to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise if any loss is sustained, he must make it good to his, principal, and, if any profit accrues, he must account for it.

Present Case:

  • ABC Ltd. sells its products through some agents and it is not the custom in their business to sell the products on credit.
  • Mr. Pintu, one of the agents sold goods of ABC Ltd. to M/s. Parul Pvt. Ltd. (on credit) which was insolvent at the time of such sale.
  • ABC Ltd. sued Mr Pintu for compensation towards the loss caused by to the sale of products to M/s. Parul Pvt. Ltd.

Thus, ABC Ltd. will succeed in its claim as Mr. Pintu, the agent acted otherwise by not conducting the business according to the direction given by his principal.

Question 8. Rahul a transporter was entrusted with the duty of transporting tomatoes from a rural farm to a city by Aswin. Due to heavy rains, Rahul was stranded for more than two days. Rahul sold the tomatoes below the market rate in the nearby market where he was stranded fearing that the tomatoes may perish. Can Aswin recover the loss from Rahul on the ground that Rahul had acted beyond his authority?

Answer:

Agent’s authority in an emergency

As per Sec. 189 of the Indian Contract Act, 1872, an agent has authority, in an emergency, to do all such acts to protect his principal from loss as would be done by a person of ordinary prudence, in his case, under similar circumstances.

Present Case:

Rahul, the transporter, entrusted with the duty of transporting tomatoes, was stranded for more than two days due to heavy rains. Rahul sold the tomatoes below the market rate fearing that the tomatoes may perish.

Here Rahul acts in an emergency and acts as a man of ordinary prudence. Since Rahul acts in an emergency Aswin cannot recover the loss from Rahul on the ground that he has acted beyond his authority.

Question 9. Azar consigned electronic goods for sale to Aziz. Aziz employed Rahim a reputed auctioneer to sell the goods consigned to him through auction. Aziz authorized Rahim to receive the proceeds and transfer those proceeds once in 45 days. Rahim sold goods on auction for ₹ 2,00,000 but before transferring the proceeds of the auction, became insolvent. Assess the liability of Aziz according to the provisions of the Indian Contract Act, of 1872.

Answer:

Provision:

According to Section 195 of the Contract Act, of 1872, in selecting an agent (substituted) for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his case.

  • And, if he does this, he is not responsible to the principal for the acts or negligence of the agent so selected.
  • Thus, while selecting a “substituted agent” the agent is bound to exercise the same amount of diligence as a man of ordinary prudence and if he does so he will not be responsible for acts or negligence of the substituted agent.
  • Hence, according to the provisions of the Indian Contract Act, of 1872 where the consignee has discharged his duties as a man of ordinary prudence and diligence, he shall not be liable for any sum to the consignor.

Present Case:

In this case, Azar consigns goods to Aziz in due course employs an auctioneer in goods to sell goods of Azar and also allows him to receive the proceeds of the sale.

The auctioneer becomes insolvent afterwards without handing over the proceeds. So, Aziz will not be responsible to Azar as he has discharged his duties as a man of ordinary prudence and diligence.

Question 10. Bhupendra borrowed a sum of ₹ 3 lacs from Atul. Bhupendra appointed Atul as his agent to sell his land and authorized him to appropriate the amount of loan out of the sale proceeds. Afterwards, Bhupendra revoked the agency. Decide under the provisions of the Indian Contract Act, 1872 whether the revocation of the said agency by Bhupendra is lawful.

Answer:

As per Section 202 of the Indian Contract Act, of 1872, where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot in the absence of an express contract, be terminated to the prejudice of such interest.

Present Case:

Bhupendra borrowed a sum of ₹ 3 lacs from Atul. Bhupendra appointed Atul as his agent to sell his land and authorized him to appropriate the amount of loan out of sale proceeds. Later. Bhupendra revoked the agency. So as per Section 202 revocation of the said agency by Bhupendra is unlawful.

Question 11. X has made an agency agreement with Y to authorize him to purchase goods on behalf of X for the year 2020 only. The agency agreement was signed by both and it contains all the terms and conditions for the agent. It has a condition that Y is allowed to purchase goods a maximum up to the value of ₹ 10 lakhs only. In April 2020. Y has purchased a single item of ₹ 12 lakhs from Z as an agent of X.
The market value of the item purchased was ₹ 14 lakhs but a discount of ₹ 2 lakhs was given by Z. Agent Y has purchased this item due to the heavy discount offered and the financial benefit to X.
After delivery of the item Z demanded the payment from X as Y is the agent of X.
But X denied making the payment stating that Y has exceeded his authority as an agent therefore he is not liable for this purchase. Z has filed a suit against X for payment.
Decide whether Z will succeed in his suit against X for recovery of payment as per provisions of The Indian Contract Act, of 1872.

Answer:

An agent does all acts on behalf of the principal but incurs no personal liability. The liability remains that of the principal unless there is a contract to the contrary.

  • An agent also cannot personally enforce contracts entered into by him on behalf of the principal. In the light of section 226 of the Indian Contract Act, of 1872, the Principal is considered to be liable for the acts of agents which are within the scope of his authority.
  • Further section 228 of the Indian Contract Act, of 1872 states that where an agent does more than he is authorised to do, and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognise the transaction.
  • In the given case, the agency agreement was signed between X and Y, authorizing Y to purchase goods maximum up to the value of ₹ 10 lakh. But Y purchased a single item of ₹ 12 lacks from Z as an agent of X at a discounted rate to financially benefit X.

On demand of payment by Z, X denied saying that Y has exceeded his authority therefore he is not liable for such purchase. Z filed a suit against X for payment.

  • As said above, liability remains that of the principal unless there is a contract to the contrary. The agency agreement specifies the scope of authority of Y for the purchase of goods, however, he exceeded his authority as an agent.
  • Therefore, in the light of section 228 as stated above, since the transaction is not separable, X is not bound to recognize the transaction entered between Z and Y, and therefore may repudiate the whole transaction.

Hence, Z will not succeed in his suit against X for recovery of payment.

Question 12. Explain whether the agency shall be terminated in the following cases under the provisions of the Indian Contract Act, of 1872:

  1. A gives authority to B to sell A’s land, and to pay himself, out of the proceeds, the debts due to him from A’. Afterwards, A becomes insane.
  2. A appoints B as A’s agent to sell A’s land. B, under the authority of A, appoints C as the agent of B. Afterwards, A revokes the authority of B but not of C. What is the status of the agency of C?

Answer:

1. Provision:

  • According to Sec. 202 of the Indian Contract Act, 1872, where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.
  • In other words, when the agent is personally interested in the subject matter of the agency, the agency becomes irrevocable.

Present Case:

In the given question, A gives authority to B to sell A’s land; and to pay himself, out of the proceeds, the debts due to him ‘from A. As per the facts of the question and provision of law, A cannot revoke this authority, nor it can be terminated by his insanity.

2. According to Sec. 191 of the Indian Contract Act, 1872, a “Sub-agent” is a person employed by, and acting under the control of, the original agent in the business of the agency.

Sec. 210 further provides that, the termination of the authority of an agent causes the termination (subject to the rules regarding the termination of an agent’s authority) of the authority of all sub-agents appointed by him.

Present Case:

In the given question, B is the agent of A, and C is the agent of B. Hence, C becomes a sub-agent. Thus, when A revokes the authority of B (agent), it results in the termination of the authority of the sub-agent appointed by B i.e. C (sub-agent).

Question 13. A rented his house to B on lease for 3 years. The lease agreement is terminable on a 3-month notice by either party. C, the son of A, needing a separate house to live in, served a notice on B, without any authority, to vacate the house within a month and requested his father A to ratify his action. Examine whether it shall be valid for A to ratify the action of C taking into account the provisions of the Indian Contract Act, 1872.

Answer:

Provision:

As per Sec. 200 of the Indian Contract Act, 1872, an Act done by one person on behalf of another, without such other person’s authority, which if done with authority, would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot, by ratification by made to have such effect.

In other words, when the interest of third parties is affected, the principle of ratification does not apply. Ratification cannot relate to the date of the contract if a third party has in the intervening time acquired rights.

Present Case:

In this case, A rented his house to B on lease for three years. The lease agreement is terminable on three months’ notice by either party.

  • C, the son of A, needing a separate house to live in, served a notice on B, without any authority, to vacate the house within a month and requested his father A to ratify his action.
  • So, it shall not be valid for A to ratify the action of C. So C, son of A cannot make notice and ratify it from his father A, as he is not a party to the contract.

Question 14. Ramu has given authority to Prem to buy certain goods at the market rate. Prem buys the goods at a higher rate than the market rate, However, Ramu accepted the purchase despite the higher rate. Afterwards, Ramu comes to know that the goods purchased belonged to Prem himself. Decide, whether, Ramu is bound by ratification.

Answer:

As per Section 198 of the Indian Contract Act, 1 872, no valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.

In this case, Ramu is not bound by ratification. If, however, Ramu is prepared to take the risk of what Prem has done, he can choose to ratify without full knowledge of the facts.

Question 15. Hari, authorises Bharat, a merchant in Mumbai, to recover dues from Bankey and Co., Bharat instructs Deepak, a solicitor, to take legal proceedings against Bankey and Co. for recovery of the money. Explain the legal position of Deepak, referring to provisions of the Indian Contract Act, of 1872, related to agency.

Answer:

As per Section 194 of the Indian Contract Act, 1 872, where an agent, holding an express, or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly.

Such a person is not a sub-agent but an agent of the principal for such part of the business of the agency as is entrusted to him. In this case, Deepak is not a sub-agent to Hari, but he is a solicitor for Hari.

Question 16. Mr. X owes Mr. Y ₹ 50,000. He (Mr X) afterwards appoints Mr Y as his agent to sell his Flat in Bangalore and after paying himself (i.e., Mr Y) what is due to him, hands over the balance to Mr X. Examine, as per the provisions of the Indian Contract Act, 1872rcan Mr X revoke his authority delegated to Mr Y?

Answer:

As per Sec. 202 of the Indian Contract Act 1872, an agency becomes irrevocable where the agent has himself an interest in the property which forms the subject matter of the agency, and such an agency cannot, in the absence of an express provision in the contract be terminated to prejudice of such interest.

The rule of agency coupled with interest applies and does not come to an end even on death, insanity or the insolvency of the principal.

Present Case: Mr. X owes Mr. Y ₹ 50,000. He (Mr X) afterwards appoints Mr Y as his agent to sell his flat in Bangalore and, after paying himself (Mr Y) what is due to him, hand over the balance to Mr X.

Conclusion: In the present case, the interest was created in favour of Mr, Y. So, Mr. X cannot revoke the authority delegated to Mr. Y.

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