BHARTI MISHRA1

TERMINATION OF AGENCY

INTRODUCTION

Before understanding what is termination of agency lets first know what agency is? In an agency
one person (principal) employs another person (agent) to represent him or to act on his behalf, in
dealings with a third person. The act of the agent binds the principal in the same manner in
which he would be bound if he does that act himself. The agent may be expressly or impliedly
authorized to do act on behalf of the principal. Agency, as is well-settled, is a legal concept,
which is employed by the Court when it becomes necessary to explain and resolve the problems
created by certain fact situation. In other words, when the existence of an agency relationship
would help to decide an individual problem, and the facts permit a Court to conclude that such a
relationship existed at a material time, then whether or not any express or implied consent to the
creation of an agency may have been given by one party to another, the Court is entitled to
conclude that such relationship was in existence at the time, and for the purpose in question.

Use of the word “Agent” for a person is not conclusive proof of the fact that there is agency in
law between the parties. “The Court must examine the true nature of the agreement and the
subsequent dealings between the parties and then decide whether it established a relationship of
agency under the law. (Pollock & Mulla: 14th Edition: 1692)

An agent is a person employed to do any act or enter into a contractual relationship with others
(third parties) on behalf of his principal. An agent acts as a connecting link between his principal
and third parties. While representing his principal, an agent acts in the same capacity as of his
principal. An agent is authorized by his principal to act on his behalf. An agent binds his
principal legally in business transactions with third parties due to their agency relationship.

Section 201 Termination of agency: An agency is terminated by the principal revoking his
authority, or by the agent renouncing the business of the agency; or by the business of the agency
being completed; or by either the principal or agent dying or becoming of unsound mind; or by
the principal being adjudicated an insolvent under the provisions of any Act for the time being in
force for the relief of insolvent debtors.i

A contract of agency is a species of the general contract. As such, an agency may terminate in
the same way as a contract is discharged except where the agency is irrevocable. The relation of
principal and agent can only be terminated by the act or agreement of the parties to the agency or
by operation of lawii. “An agency, when shown to have existed, will be presumed to have

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BA-LLB, SECTION –B
THIRD SEMESTER
continued, in the absence of anything to show its termination, unless such a length of time has
elapsed as destroys the presumption” (H.K. Saharay: Eleventh Edition: 946). The agent’s duty to
act on behalf of the principal comes to an end on the termination of an agency. The timeframe
for the termination of an agency can be stipulated by a particular statute or instrument.

This Section explains us the various mode of termination of agency which are as follows:-

i) By revocation of authority by the principal.

ii) By renunciation of the business of agency by the agent.

iii) By the completion of the business of the agent.

iv) By the death or insanity of either the principal or the agent.

v) By insolvency of the principal.

Other modes of termination are:

The section is not exhaustive.iii An agency may be terminated by other modes, viz:

 by mutual agreement;
 completion of the term of agency by expiry of time agreed upon;
 destruction of the subject- matter of the agency;
 the agency becoming subsequently unlawful;
 dissolution of the principal firm.

The agency, which may be validly created, stands revoked in the event of different situations
mentioned above, including the death or Insanity of either the principal or the agent, or by the
insolvency of the principal.

Rules of revocation by authority

It has been noted above that one of the modes of the meaning of the termination of agency is the
revocation of agent’s authority by the principal subject to the following rules-

1. REVOCATION MAY BE IMPLIED OR EXPRESSEDiv

According to Section 207, revocation of agency may be either expressed or implied in the
conduct of the principal. For example, A empowers B to let A’s house. Afterwards, A lets it
himself. This is an implied revocation of B’s authority.

In the case of R.D. Saxena v. Balaram Prasad Sharma v, the Apex Court said that the right of the
litigant was to be read as the corresponding counterpart of the professional duty of the advocate.
Therefore, the refusal to return the files to the client when he demanded the same, amounted to
misconduct under Section 35 of the Advocates Act, 1961.

2. NO REVOCATION IF THE AGENT HAS INTREST IN THE SUBJECT

MATTER

According to Section 202 of the Act, “Where the agent has himself an interest in the property
which forms the subject matter of the agency, the agency cannot, in the absence of an express
contract, be terminated to the prejudice of such interest. When the authority of an agent is
“coupled with interest”, the authority conferred on the agent cannot be revoked to the prejudice
of the agent’s interest. This is, however, subject to an express contract to the contrary. For
example- A gives authority to B to sell A’s land and to pay himself out of the proceeds, the debts
due to him from A. A cannot revoke this authority, nor can it be terminated by his insanity or
death.

Whether the agency can be revoked by the principal or not depends on the fact whether agency
creates an interest in favour of the agent or not. If no such interest has, in fact, been created, mere
assertion in the contract that the power of attorney is irrevocable, the agency may still be
revoked, if no interest has been created in favour of the agent.vi(Bangia R.K. : 2015: 157)

In Bhagwanbhai Karamanbhai v. Arogyanagar Co-op. Hsg. Socy. Ltd.vii, irrevocable power of

attorney was executed by all land owners for sale of land. Landowners had also parted with their
power in favour of Power of Attorney holder. The Gujarat High Court held that on the death of
one of the landowners, there was no need for power of attorney holder to obtain consent from
heirs and legal representatives of deceased landowners, because there was no express contract for
the termination of agency.

Likewise in Birat Chandra Dagara v. Taurian Exim Pvt. Ltd.viii, there was an intention to transfer
leasehold area in favour of power of attorney holder. Interest was created in favour of power of
attorney holder in respect of such property. The Orissa High Court held that Section 202 was
attracted and such agency could not be terminated, in the absence of any express contract, to the
prejudice of such interest.

Likewise in Ranganayakamma v. K.S. Prakashix, the Karnataka High Court held that where
member of joint family with full knowledge had agreed to release and relinquish her claim to
share in joint family properties, and had empowered her brother as power of attorney holder,
with authority to execute the partition deed, in express terms, in the manner the holder deems fit.
Neither, in pleading nor in her deposition there was mention of any other person, in whom she
had released and relinquished her right over property. Contention that there was conflict of
interest between agent and principal was held not tenable. Section 215 did not apply. It was held
that partition deed executed by power of attorney holder releasing and relinquishing properties in
his favour was not illegal.
Also in the case of Ishwarappa v. Arun Kumar x there was execution of power of attorney to look
after construction work Terms of power of attorney had not specifically authorized agent to incur
the loan liabilities in his personal capacity for the purpose of construction of building Property
was not offered as a security for pecuniary liabilities incurred by agent at the time of creation of
agency, as power of attorney could not be said to be coupled with interest.

JUDGEMENT: The Karnataka High Court held that the agent could not take plea that because of
personal liabilities incurred, agency became irrevocable unless accounts were settled and
liabilities were discharged. Revocation of power of attorney was held proper. Moreover, personal
liabilities has also not been approved.

3. REVOCATION POSSIBLE BEFORE THE AUTORITY HAS BEEN EXECUTED xi

According to Section 203, the principal may, save as otherwise provided by the last preceding
Section (i.e., Section 202) revoke authority given to his agent at any time before the authority
been exercised so as to bind the principal. It means that when the agent has already exercised the
authority conferred upon him by principal, the revocation of the same is not possible. According
to Section 204 revocation when authority has been partly exercised. When the authority has been
partly exercised by the agent there can be no revocation of agency as regards such acts and
obligations as arise from the acts already done.

“204. Revocation where authority has been partly exercised.- The principal cannot revoke the
authority given to his agent after the authority has been partly exercised so far as regards such
acts and obligations as arise from acts already done in the agency.”

For example- A authorizes B to buy 1,000 bales of cotton on account of A and to pay for it out of
A’s money remaining in B’s hands. B buys 1,000 bales of cotton in his own name, so as to make
himself personally liable for the price. A cannot revoke B’s authority so far as regards payment
for the cotton.

4. PRINCIPAL TO COMPENSATE, IF THERE IS PREMATURE REVOCATION

WITHOUT JUSTIFICATION.xii

Section 205 makes the following provisions: may be, for any previous revocation or renunciation
of the agency without sufficient cause. —“Where there is an express or implied contract that the
agency should be continued for any period of time, the principal must make compensation to the
agent, or the agent to the principal, as the case may be, for any previous revocation or
enunciation of the agency without sufficient cause”.

If the agency is for a fixed term, although with the possibility of fresh appointment after the
expiry of the term, it automatically terminates on the expiry of the said term. Such agency cannot
be said to be irrevocable.xiii

5. PRINCIPAL SHOULD GIVE REASONABLE NOTICE OF REVOCATION xiv

When the principal having justification to do revoke the authority there should a reasonable
notice of the revocation to the agent otherwise he will be held liable for the damages caused to
the agent. Section 206 of the act makes the provision that principal should give reasonable notice
of revocation. If the principal does not give reasonable notice to the agent of the revocation, the
principal will be held liable and should pay for the damages which may be caused to the agent.

In re M/s. Om Prakash Pariwalxv, the petitioners were appointed the Storing Agent of Food
Corporation of India. Pursuant to the contract, the storing agent invested huge sums of money,
engaged a number of workmen and started an infrastructure of business, and changed his pattern
of life financially and in many other ways. The contract of agency was terminated by the F.C.I.
without giving any reasons or notice. It was held that termination of agency without giving to the
storing agent a notice asking him show cause and opportunity of hearing before the termination
was illegal. Moreover, a clause in the agreement enabling FCI to terminate the agency like that
was itself unreasonable and therefore, not valid.

6. TERMINATION OF AGENCY TERMINATES SUB- AGENCY ALSOxvi

According to Section 210 of the Indian Contract Act, termination of the authority of an agent
causes the termination of the authority of all the sub-agent appointed by him.

7. AGENT’S DUTY ON TERMINATION OF AGENCY BY PRINCIPAL’S DEATH

OR INSANITYxvii

According to Section 209 of the Act, when a principal dies or becomes a person of unsound
mind, the agency is terminated. The agent is bound to take all reasonable steps for the protection
and preservation of the interests entrusted to him, on behalf of the representative of his late
principal.

8. TIME FROM WHICH THE TERMINATION OF AGENT’S AUTHORITY

BECOMES EFFECTIVExviii

Termination of an agency takes its effect when it becomes known to an agent. When the
principal revokes the agency, it comes into effect only when it is known to the agent. However,
in the case of third parties, termination comes into effect only when such termination of agency
comes to their knowledge. It is the duty of an agent that on the termination of an agency due to
death of the principal or his becoming insane, to take all the reasonable steps on behalf of his late
principal or dying principal to protect the interest that the latter entrusts to him.

The termination of the agency does not become effective immediately. It takes effect-

 Against the agent, when the fact of termination becomes known to him, and
 Against third persons, when it becomes known to them.
According to Section 210 of the Indian Contract Act, 1872 termination of an agent’s authority
also terminates the sub-agents authority appointed by the agent. A per Section 209 of
Indian Contract Act, 1872 it is the duty of an agent to protect his principal’s interest in case his
principal becomes of unsound mind or dies.

For example- A directs B to sell goods for him and agrees to give B five per cent commission on
thr price fetched by the goods. A, afterwards, by a letter, revokes B’s authority. B, after the letter
is sent, but before he receives it, sells the goods for 100 rupees. The sale is binding on A, and B
is entitled to five rupees as his commission.

In Ram Asri v. Rakesh Chandxix, the facts admitted were that one Mahant Jaram Dass executed
the general power of attorney to deal with his immovable property on 10-6-1968 by registered
deed registered at Anandpur and that it was cancelled by another deed registered at Ropar on 18-
4-1977. Ram Gopal, the attorney of Jaram Dass, a son of the later, sold the property by a sale
deed executed on 7-7-1977. There was, however, not an iota of evidence to establish that the
vendee, the defendants, had the knowledge of the cancellation of general power of attorney in
favour of Ram Gopal. Upholding the validity of the sale executed by the High Court of Punjab
and Haryana ruled since the vandees never had notice of cancellation of power of attorney by
virtue of Section 208 of the Contract Act, 1872, termination of agent’s authority would have no
impact upon validity of sale.

In the case of Trueman v. Loder xx, it was observed that the policy of the law, apparently in the
interests of trade and commerce, is that the agent’s action should bind the principal, even though
the principal might have cancelled the agent’s authority unless the third persons with whom the
agent enters into contracts knew of the termination of the agency.

In this case, A traded with B’s agent with B’s authority. All parties with whom A made contracts
in that business were held to have a right to hold B liable to them “until B gives notice to the
world that A’s authority is revoked; and it makes no difference if in a particular case the agent
intended to keep the contract on his own account.

CONCLUSION

A contract of agency is a species of the general contract. As such, an agency may terminate in
the same way as a contract is discharged except where the agency is irrevocable. The relation of
principal and agent can only be terminated by the act or agreement of the parties to the agency or
by operation of law. “An agency, when shown to have existed, will be presumed to have
continued, in the absence of anything to show its termination, unless such a length of time has
elapsed as destroys the presumption Agency may be brought to an end either by the act of the
parties, or by operation of law”xxi

Agency may be terminated by subsequent events. These may be physical, as where, for example,
the subject matter is destroyed, or the principal or agent dies or becomes insane. Alternatively,
they may be legal, as where the principal or agent becomes, bankrupt, or the relationship
becomes illegal (for example, if the principal becomes an enemy alien). The effects of
termination are that as far as principal and agent are concerned, rights vested at the time of the
termination will subsist, but no new rights can be created, at least once the agent has notice of the
termination. Where the agency was created by agreement, it will be determinable in the same
way. A continuing agency may also be determined by giving such period of notice as is specified
in any agreement, or failing that, reasonable notice.

Finally, if either party acts in a way which is inconsistent with the continuation of the agency
then it will be terminated though of course, this may well give rise to rights of action for breach
of contract. As regards termination by operation of law, if an agency is for a particular
transaction, the relationship will terminate when that transaction is completed. If it is for a
specified period, it will cease at the end of that period.
i
Section 201 of the Indian Contract Act, 1872
ii
 http://www.studymode.com/essays/Termination-Of-Agency-1469514.html. on 28/11/19 : 07:52 p.m.
iii
Janardhan Jaikrishna v. Gangaram Mangalchand, (1951) Nag 90, AIR 1951
iv
Section 207 of ICA, 1872
v
AIR 2000 S.C. 2912
vi
Corporation Bank, Banglore v. Lalitha H. Holla, AIR 1994
vii
AIR 2003 Guj. 294
viii
AIR 2005 Ori. 147
ix
AIR 2005 Kant. 426
x
AIR 2004 Kant. 417
xi
Section 203 of the Indian Contract Act, 1872
xii
Section 205 of the Indian Contract Act, 1872
xiii
P. Sukhdev v. The Commissioner of Endowments, AIR 1997, A.P. 271
xiv
Section 206 of the Indian Contract Act, 1872
xv
AIR 1988 Cal. 143
xvi
Section 210 of the Indian Contract Act, 1872
xvii
Section 209 of the Indian Contract Act, 1872
xviii
Section 208 of the Indian Contract Act, 1872
xix
AIR 2008 P. & H. 194
xx
This case was reffered to in Mulla, Indian Contract Act (1 st Ed.), 226
xxi
www.isca.in/IJSS/Archive/v2/i11/10.ISCA-IRJSS-2013-108.pdf. on 28/11/19: 10:14 p.m.

REFERENCES
 Bangia R.K.: Contract- II:2015
 H.K. Saharay: Indian Contract Act, 1872: Eleventh Edition
 Pollock & Mullah :The Indian Contract and Specific Refilef Act, 2013: Fourteenth Edition