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CMA Foundation · Fundamentals of Business Laws and Business Communication · Capacity of Parties, Free Consent

A principal appointed Latha as agent to manage his warehouse. The principal later becomes of unsound mind and the agency terminates. What is Latha's duty under the Act?

Latha must take, on behalf of the principal's representatives, all reasonable steps to protect and preserve the interests entrusted to her. The agency ends on the principal's unsound mind, but the agent still has this duty of protection.

  1. AShe may abandon the interests entrusted to her immediately
  2. BShe must take, for the principal's representatives, all reasonable steps to protect and preserve the interests entrusted to herCorrect
  3. CShe must continue the agency indefinitely on the old terms
  4. DShe must hand over the goods to the first buyer who asks

Explanation

When an agency ends by the principal dying or becoming of unsound mind, the agent must take all reasonable steps on behalf of the principal's representatives to protect and preserve the interests entrusted to him. The agency itself ends, so continuing indefinitely is wrong.

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