All questions of Unit 9: Agency for CA Foundation Exam

Understanding Principal-Agent Liability
In the context of agency law, the principal is typically liable for the acts of the agent when those acts are performed within the scope of the agent’s authority. However, there are specific circumstances where the principal may not be liable, particularly when the agent acts beyond their given authority.
Key Points on Liability
- Agent Acts Within the Scope of Authority:
The principal is liable when the agent acts within the authority granted to them. This includes any actions the agent is allowed to take as per the agreement with the principal.
- Agent Exceeds Authority:
This is where the principal is NOT liable. If the agent goes beyond the scope of their authority—meaning they engage in actions or make decisions not authorized by the principal—the principal is not responsible for those acts. This limitation protects the principal from unauthorized commitments made by the agent.
- Fraud or Misrepresentation:
If the agent commits fraud or misrepresentation for the benefit of the principal, the principal may still be held liable under certain circumstances. However, if the actions were beyond the authority, the principal's liability may be minimized.
- Work Done Out of Authority but Accepted:
If the principal accepts work done by the agent that was outside their authority, the principal may assume some liability. This acceptance can create an implied authority, binding the principal to the agent's actions.
Conclusion
In summary, the principal is not liable for the agent's acts if the agent exceeds their authority, as this protects the principal from unauthorized actions that could lead to liability. Understanding these distinctions is crucial for both agents and principals in their business dealings.

Explanation:

Doctrine of Apparent Authority
The doctrine of apparent authority applies in situations where the actions or representations of a principal lead third parties to believe that an agent has authority to act on behalf of the principal, even if the agent does not actually possess such authority.

Key Points:
- Allowing another to appear as an agent: This applies when a person allows another who is not his agent to appear as his agent.
- Agent appearing to possess more authority: This applies when a principal allows his agent to appear to possess more authority than he actually has.
- Reserving or limiting agent's authority: This applies when the principal reserves or limits the authority of an agent without informing third parties.
- Allowing agent to appear to have authority after termination: This applies when the principal allows it to appear that the agent has authority even after the agent's authority has been terminated.
Therefore, the doctrine of apparent authority encompasses all these scenarios where the actions or inactions of the principal create a reasonable belief in third parties that the agent has authority to act on behalf of the principal.

Understanding Agent's Authority
The extent of an agent's authority is crucial in determining the scope of their actions and responsibilities. This authority can be either express (clearly defined) or implied (assumed based on circumstances). The correct answer, 'D', acknowledges that several factors collectively shape an agent's authority.
Factors Influencing Authority
- The Nature of Act or Business:
The specific act or business for which the agent is appointed dictates their authority. For instance, an agent appointed to sell property has the authority to negotiate and finalize sales related to that property.
- Incidental Actions:
Authority also extends to actions that are incidental to the primary business. These are actions that, while not explicitly stated, are necessary for effectively carrying out the main task. For example, an agent selling goods may need to handle payments or arrange for delivery.
- Customs and Usages:
The usual customs and practices of the trade significantly influence authority. In certain industries, there are established norms that dictate what an agent can or cannot do. These customs can fill in gaps where express authority is lacking.
Conclusion
In summary, the authority of an agent is shaped by multiple interrelated factors. Understanding these elements—nature of the act, incidental actions, and trade practices—ensures clarity in the agent's role and helps prevent misunderstandings. Therefore, option 'D' is correct as it encompasses all aspects that define an agent's authority comprehensively.

Incorrect Statement: All agents are entitled to be paid for their services.

Explanation:
An agency relationship is a legal relationship where one person, known as the agent, acts on behalf of another person, known as the principal. The agent is authorized to perform certain tasks and make decisions on behalf of the principal. This relationship is governed by the law of agency.

Agency Relationship:
There are several ways in which an agency relationship can be created. Some of the common ways include:

1. Express Agreement: An agency relationship can be created through an express agreement between the principal and the agent. This agreement can be in writing or oral.

2. Implication: An agency relationship can also be created by implication, where the conduct of the principal and the agent indicates that they intended to create such a relationship.

3. Necessity: An agency relationship may be created through necessity. This means that in certain circumstances, where it is not possible or practical for the principal to act on their own behalf, an agent may be appointed to act on their behalf. For example, if a person falls ill or is unable to attend a meeting, they may appoint an agent to represent them.

4. Estoppel: An agency relationship may be created through estoppel. Estoppel is a legal principle that prevents a person from denying or asserting something contrary to what they have previously stated or accepted as true. If a person acts as though someone is their agent, they may be estopped from denying that agency relationship.

Payment for Services:
While it is common for agents to be paid for their services, it is not a requirement for an agency relationship. In some cases, agents may work on a voluntary basis or may be compensated through other means, such as commission or a share of the profits. Therefore, the statement that all agents are entitled to be paid for their services is incorrect.

Conclusion:
In summary, the incorrect statement is that all agents are entitled to be paid for their services. While it is common for agents to be paid, it is not a requirement for an agency relationship. An agency relationship can be created through various means, including express agreement, implication, necessity, and estoppel.

Understanding Termination of Agency with Public Authority
When an agency with public authority or a public body terminates a contract or service, judicial intervention through a writ petition can be necessary under certain conditions.
Reasons for Judicial Intervention
- If the termination be unreasonable:
Judicial review may be warranted if the termination is found to be unreasonable. This means that the decision lacks a rational basis or fails to consider essential facts, leading to an unjust outcome.
- If the termination be arbitrary:
An arbitrary termination occurs when the decision appears to be capricious or without any justifiable reason. If the termination seems to be made without following established procedures or principles of fairness, it can be challenged in court.
- If the termination be unconscionable:
A termination may be deemed unconscionable if it is excessively harsh or oppressive to one party. If the circumstances surrounding the termination violate notions of fairness and justice, judicial intervention may be sought.
Conclusion
In essence, all three conditions—unreasonableness, arbitrariness, and unconscionability—can provide grounds for judicial intervention in cases of termination by public authorities. Therefore, the correct answer is option 'D', as all these factors can attract judicial scrutiny to ensure that actions taken by public bodies remain within the bounds of legality and fairness.
This highlights the importance of accountability in public administration and the role of the judiciary in safeguarding individual rights against potential misuse of power.

• Duty to communicate: The agent must be under a duty to communicate any material information to the principal. This ensures that the agent is responsible for passing on important information relevant to the proceedings.


• Material information: The information that the agent is required to communicate must be material, meaning it is significant and relevant to the proceedings at hand. This ensures that only important information is shared with the principal.


• Obtained in the course of business: The information must have been obtained in the course of the business for which the agent has been engaged. This ensures that the information is directly related to the business activities being conducted by the agent on behalf of the principal.


• No fraud on the principal: The agent must not be privy to any fraud being committed against the principal. This ensures that the agent is acting in good faith and is not misleading or deceiving the principal in any way.

By following these rules, the agency can effectively receive notice on behalf of the principal and ensure that important information is communicated in a transparent and trustworthy manner.

Understanding Undisclosed Agency
An undisclosed agency arises in situations where a third party engages with an agent without knowing that the agent is acting on behalf of a principal. This arrangement has specific implications and characteristics.
Key Characteristics of Undisclosed Agency:
- Agent's Autonomy: The third party believes the agent is acting independently, without the influence or direction of a principal.
- Legal Implications: The agent can bind the principal to contracts made with the third party, even if the third party is unaware of the principal’s existence.
- Risk of Liability: If the agent fails to meet obligations, the third party may only hold the agent liable, not the principal, due to the lack of transparency.
Comparison with Other Agency Types:
- Disclosed Agency: The third party is fully aware of the principal's identity and the nature of the agent's role.
- Partially Disclosed Agency: The third party knows that an agent is involved but does not know the principal's identity.
Conclusion:
In summary, option A accurately describes an undisclosed agency, where the third party is unaware of the principal's existence and assumes the agent is acting solely on their own behalf. This distinction is crucial in understanding the legal dynamics of agent-principal relationships and the responsibilities involved.

Understanding Irrecoverable Agency
An agency is considered irrecoverable when certain conditions are met. The correct answer is option 'C', which includes both situations mentioned in options (a) and (b). Here’s a detailed explanation:
1. Authority of Agency Coupled with Interest
- An agency is irrevocable when the agent has an interest in the subject matter of the agency. This means the agent has a stake or a benefit that cannot be easily taken away.
- For example, if an agent is given the authority to sell a property and has invested money in it, they cannot be dismissed without proper cause, as their financial interest is tied to the agency.
2. Agent Incurring Personal Liability
- An agency becomes irrevocable when the agent has incurred personal liability. If the agent enters into contracts or obligations on behalf of the principal that result in personal risk, the principal cannot simply terminate the agency without facing potential consequences.
- This creates a situation where the agent’s personal stakes protect their authority, making the agency relationship more secure.
Conclusion
- Therefore, in situations where the authority is coupled with an interest and where the agent has incurred personal liability, the agency cannot be revoked without just cause. Both factors contribute to the agency's irrecoverability, making option 'C' the correct answer. This assures that agents are protected when they have invested or risked their own interests in the agency relationship.

Understanding Agency Termination
In the context of agency law, it's crucial to understand how and when an agency relationship can be terminated. Here’s a detailed explanation of why option 'A' is incorrect.
Agency Termination by Death
- The statement claims that an agency may be terminated by the death of either party. This is incorrect because:
- If the agent dies, the agency relationship is automatically terminated.
- However, if the principal dies, the agency may not necessarily terminate if the agent has the authority to act on behalf of an estate (in cases of ongoing business).
- Certain agencies are created for specific transactions, and the death of the principal can lead to complications, but it does not universally terminate the agency.
Other Valid Methods of Termination
- Express Agreement: An agency can indeed be terminated by a mutual agreement between the principal and the agent, making option 'B' correct.
- Principal's Right to Terminate: The principal has the power to terminate the agency at any time, which supports option 'C' as accurate.
- Mental Incapacity of Agent: If an agent becomes mentally incapacitated, the agency relationship is terminated as the agent cannot fulfill their duties, validating option 'D'.
Conclusion
In summary, while the death of an agent terminates the agency, the death of the principal does not universally end the agency relationship, making option 'A' the incorrect statement. Understanding these nuances is essential in agency law for effective legal practice.

Explanation:

Termination of Agency Contract
When the contract of agency is terminated, the agent no longer has the authority to act on behalf of the principal. This means that the agent cannot bind the principal to any new contracts or obligations.

Third Party Contract
If a third party enters into a contract with the agent without knowledge of the termination of the agency contract, the situation becomes more complex. In this case, the third party may believe that they are entering into a valid contract with the agent on behalf of the principal.

Binding on the Principal
According to the law of agency, if a third party enters into a contract with an agent who no longer has authority to act on behalf of the principal, the contract may still be binding on the principal. This is known as the doctrine of "apparent authority." If the third party had no knowledge of the termination of the agency contract and believed in good faith that the agent had the authority to act on behalf of the principal, the principal may still be held liable for the contract.
Therefore, in the given scenario, the contract entered into by the third party with the agent would be binding on the principal, even though the agency contract had been terminated. This is to protect the innocent third party who entered into the contract in good faith.
In conclusion, when a third party enters into a contract with an agent without knowledge of the termination of the agency contract, the contract may still be binding on the principal under the doctrine of apparent authority.