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IAI Actuarial Core Principles · Business Management · Trusts and agency

Vikram, a trader in Jaipur, allowed his employee Deepak for two years to place orders with Mehta Suppliers in his name, and Vikram always paid the bills. Vikram then privately withdrew Deepak's authority but did not inform Mehta Suppliers. Deepak placed another order in Vikram's name. Which statement is correct?

Vikram is bound. His earlier conduct led Mehta Suppliers to believe Deepak was his agent, and a termination of authority affects a third party only when it is communicated. Since no notice was given, Deepak retained apparent authority and the order binds Vikram.

  1. AVikram is bound, because his past conduct led Mehta Suppliers to believe Deepak had authority and the third party was not told of the terminationCorrect
  2. BVikram is not bound, because actual authority had ended
  3. CVikram is bound only if Deepak ratifies the order
  4. DDeepak alone is liable, because a withdrawal takes effect immediately against everyone
  5. Vikram is bound only if the order was made in writing

Explanation

Agency by holding out or estoppel arises from the principal's conduct. Termination of authority binds a third party only once it is communicated to them. Without notice to Mehta Suppliers, Deepak retains apparent authority and Vikram is bound.

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