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

Rohit employed Sunita as his agent for a fixed period of two years under a contract. After six months Rohit revoked the agency without any sufficient cause and without being entitled to do so. What does the Indian Contract Act, 1872 provide?

Rohit must compensate Sunita. Where a contract provides that the agency continues for a period, a principal who revokes it earlier without sufficient cause must pay the agent compensation, as the Act expressly states for revocation without sufficient cause.

  1. ARohit must compensate Sunita for the revocation without sufficient causeCorrect
  2. BRohit may revoke freely and owes nothing to Sunita
  3. CSunita must compensate Rohit for his decision to revoke
  4. DThe revocation is void and the agency continues automatically

Explanation

Where there is an express or implied contract that the agency continues for a period of time, the principal must compensate the agent for a previous revocation without sufficient cause (Section 205). Rohit revoked without cause despite the two-year term, so he owes compensation. The Act does not say the revocation is void or that the agent compensates the principal here.

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