Principle A master shall be liable for the fraudulent acts of his servants committed in the course o...........

Indian Contract Act (ICA)1872 Contract of Agency

Principle: A master shall be liable for the fraudulent acts of his servants committed in the course of employment. However, the master and third parties must exercise reasonable care in this regard.

Facts: Rahul was a door to door salesman with United Manufacturing Company (the Company). The Company was manufacturing Water Purifiers. Rahul, along with the Company’s products, used to carry Water Purifiers manufactured by his Cousin in a local Industrial Estate. He used to sell the local product at a lower rate giving the impression to the buyers that he is offering a discount on the Company’s product. The Company Management detected the fraudulent activity of Rahul and dismissed him from service. Rahul still continued to carry on with his activity of selling the local product pretending that he was still a salesman of the Company. Several customers got cheated in this process. The fraud was noticed by the Company when the customers began to complain about the product. The customers demanded the Company to compensate their loss.

The Company is liable to the customers who purchased the local product from Rahul only till he remained as a salesman of the Company.

The Company is not liable as Rahul was dismissed by the Company.

The Company is liable to compensate all the customers as it did not inform the public about Rahul’s fraudulent conduct and the subsequent dismissal.

The liability rests with the local manufacturer as it was a defective product.

Explanation:

Rahul acted fraudulently when he pretended to be the door to door salesman with United Manufacturing Company despite his dismissal from the said post. The company should have taken sufficient steps to ensure that the customers were aware of such a dismissal. The Company is liable to compensate all the customers as it did not inform the public about Rahul’s fraudulent conduct and the subsequent dismissal.