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IAI Actuarial Core Principles · Business Management · Trusts and agency

Meera Textiles Pvt Ltd appointed Rohan as its agent to buy cotton from farmers in Gujarat. Rohan, while negotiating with a supplier, said openly that he was buying for Meera Textiles and signed the contract as 'Rohan, agent for Meera Textiles'. Within his authority, the contract is later disputed. Who is, in general, the party bound by and entitled to enforce this contract against the supplier?

Meera Textiles is bound and can enforce the contract. Rohan acted within his authority and disclosed that he was an agent for a named principal, so the contract is between principal and supplier, and the agent is not personally liable absent a contrary agreement.

  1. ARohan personally, because he signed the contract
  2. BBoth Rohan and Meera Textiles equally, as joint promisors
  3. CMeera Textiles, because Rohan acted within authority for a disclosed principalCorrect
  4. DNeither, because an agent cannot create contracts with third parties
  5. The supplier may choose either at will, with no presumption

Explanation

Where an agent contracts within authority on behalf of a disclosed principal, the contract is between the principal and the third party. The agent normally drops out and is not personally liable. Option A ignores this general rule.

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