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At A’s direction, broker B lawfully contracts to buy ten casks of oil from C for A. A refuses delivery…

A must indemnify B. Section 222 makes a principal responsible to the agent for consequences of an authorized lawful act. Illustration (b) applies that rule to the broker’s…

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At A’s direction, broker B lawfully contracts to buy ten casks of oil from C for A. A refuses delivery and repudiates the contract. C successfully sues B, who pays damages and costs and incurs expenses in defending the suit. Who must indemnify B under the Indian Contract Act, 1872?

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Answer and explanation

Correct answer C

A must indemnify B. Section 222 makes a principal responsible to the agent for consequences of an authorized lawful act. Illustration (b) applies that rule to the broker’s damages, costs and expenses after the seller’s successful suit.

Option feedback

Option A

The seller’s successful suit does not make the seller the principal responsible for indemnity.

Option B

B’s liability to C does not defeat B’s separate right of indemnity from A for an authorized lawful act.

Option C

Section 222 and illustration (b) require A to reimburse B for the damages, costs and expenses B incurred as a result of the authorized transaction.

Option D

Illustration (b) expressly places the damages, costs and expenses on A. It does not limit indemnity to the oil price.

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