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CS Professional · Drafting, Pleadings and Appearances · Drafting of Commercial Contracts

Iyer, authorised agent of Sundaram Textiles, collected Rs 3 lakh due to Sundaram from debtor Gupta Garments. Iyer later absconded with the money. Sundaram demands the Rs 3 lakh again from Gupta. What is the legal position under Section 226?

Gupta is discharged. Section 226 gives acts of an agent the same legal consequences as acts of the principal, and its illustration says payment to an agent authorised to receive money discharges the debtor. Sundaram's remedy lies against Iyer.

  1. AGupta is discharged, as payment to the authorised agent equals payment to the principalCorrect
  2. BGupta must pay again, because only the principal can receive payment
  3. CGupta is liable for half, as the loss is shared
  4. DGupta is discharged only if Sundaram ratifies the receipt

Explanation

Illustration (b) to Section 226 states that where an agent authorised to receive money receives it from the debtor, the debtor is discharged of the obligation to pay the principal. Iyer's later default is a matter between Sundaram and Iyer.

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