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IAI Actuarial Core Principles · Business Management · Trusts and agency

Nisha, a consignor in Chennai, sends a consignment of perishable fruit to an agent, Imran, in Kolkata, and cannot be reached. The fruit will rot unless sold at once, so Imran sells it at a fair market price. Nisha later disputes his authority. Which statement is correct?

Imran had authority arising from the emergency. Indian law lets an agent do what a prudent person would do to protect the principal from loss when the principal cannot be reached. He acted in good faith at a fair price, so Nisha is bound without needing to ratify.

  1. AImran had authority arising from an emergency, and Nisha is bound if he acted in good faith for her benefitCorrect
  2. BImran had no authority since Nisha never appointed him for the sale
  3. CNisha is bound only if she ratifies the sale
  4. DImran acted as a sub-agent and is liable to Nisha
  5. The sale is void because agency by necessity does not exist in Indian law

Explanation

Indian law recognises an agent's authority in an emergency to do what a person of ordinary prudence would do to protect the principal from loss. Imran, who held the goods, could not contact Nisha and acted in good faith at a fair price. Her ratification is therefore not needed.

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