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CMA Foundation · Fundamentals of Business Laws and Business Communication · Meaning of Indemnity, Guarantee, Pledge, Agent

Gupta consigns 1,000 bales of cotton to Bhatia, who has advanced money to Gupta against that cotton. Gupta authorises Bhatia to sell the cotton and repay himself the advances from the price. There is no express contract on revocation. Which statement is correct?

Gupta cannot revoke the authority, and his insanity or death would not terminate it, because Bhatia has an interest in the cotton through his advances. Section 202 bars termination to the prejudice of such an interest in the absence of an express contract, so ordinary free revocation does not apply.

  1. AGupta may revoke the authority at any time because every agency is revocable
  2. BThe authority ends automatically when Bhatia sells the first bale
  3. CThe authority is terminated if Bhatia becomes of unsound mind but not if Gupta does
  4. DGupta cannot revoke the authority, nor does his insanity or death terminate it, since Bhatia has an interest in the subject-matterCorrect

Explanation

Section 202 provides that where the agent has an interest in the property forming the subject-matter of the agency, the agency cannot, absent an express contract, be terminated to the prejudice of that interest. Illustration (b) matches this fact pattern: the principal cannot revoke, and his insanity or death does not terminate it. The claim that every agency is freely revocable ignores this exception.

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