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

Under the Indian Contract Act, 1872, A directs B, his agent, to buy a certain house for him. B tells A that the house cannot be bought, and then buys it for himself. On discovering this, what can A do?

A can compel B to sell the house to him at the price B paid for it. B dealt in the agency business on his own account without A's knowledge, so the principal is entitled to claim the benefit that resulted from the transaction.

  1. ANothing, because B paid the price from his own funds
  2. BCompel B to sell the house to A at the price B gave for itCorrect
  3. CCompel B to sell the house to A at its current market value
  4. DOnly claim damages for the agent's delay

Explanation

Where an agent, without the principal's knowledge, deals in the business of the agency on his own account, the principal is entitled to claim any benefit resulting from the transaction. In the illustration, A may compel B to sell the house to A at the price B paid. Market value is not the measure, and B's use of his own funds does not defeat A's claim.

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