UNIT – III

Agency- Definition- Creation of Agency- Kinds of Agents- Distinction between Agent and
Servant- Rights and Duties of Agent- Relation of Principal with third parties- Delegation-
Extent of Agents authority- Personal liability of Agent- Termination of Agency.

AGENCY

INTRODUCTION:

The complexities of modern business are such that it is not possible for any man to
transact all his business by himself. He cannot personally attend to all matters in which it is
necessary for him to be brought into legal relations with other people. Of necessity he had to
depend on the services of other persons in order to run his day-to-day business affairs. Such
other person is called agents. At all times all of us act as principals and agents. If you ask
your friend to buy a ticket for you for a cricket match, you are acting as a principal and your
friend is your agent. If your father asks you to deposit a sum of money against an electricity
bill, you are acting as his agent. Similarly a business man transacts most of his business
through agents.

The law of agency is dealing with a set of contractual, quasi-contractual and non-

contractual fiduciary relationships that involve a person, called the agent, that is authorized to
act on behalf of another (called the principal) to create legal relations with a third party. The
reciprocal rights and liabilities between a principal and an agent reflect commercial and legal
realities. A business owner often relies on an employee or another person to conduct a
business. In the case of a corporation, since a corporation is a fictitious legal person, it can
only act through human agents. The principal is bound by the contract entered into by the
agent, so long as the agent performs within the scope of the agency. A third party may rely in
good faith on the representation by a person who identifies himself as an agent for another. It
is not always cost effective to check whether someone who is represented as having the
authority to act for another actually has such authority. If it is subsequently found that the
alleged agent was acting without necessary authority, the agent will generally be held liable.

NATURE OF AGENCY

In law, the relationship that exists when one person or party (the principal) engages
another (the agent) to act for him, e.g. to do his work, to sell his goods, to manage his
business. The law of agency thus governs the legal relationship in which the agent deals with
a third party on behalf of the principal. The competent agent is legally capable of acting for
this principal vis-à-vis the third party. Hence, the process of concluding a contract through an
agent involves a twofold relationship. On the one hand, the law of agency is concerned with
the external business relations of an economic unit and with the powers of the various
representatives to affect the legal position of the principal. On the other hand, it rules the
internal relationship between principal and agent as well, thereby imposing certain duties on
the representative (diligence, accounting, good faith, etc.). In India, the law relating to
contracts of agency is contained in Sections 182 to 238 of the Indian Contract Act, 1872.

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MEANING AND DEFINITION OF AGENCY
When a person appoints another to act on his behalf with a third party, it is called
‘Agency’. The person who appoints is called ‘Principal’. The person, who is appointed, is
called ‘Agent’. The contract between them i.e., the principal and Agent is called ‘Contract of
Agency.
‘Agency is the legal relationship between an agent and principal; to bring the
principal into legal relationship with the third party’.
Example: ‘A’ appoints ‘B’ to purchase some land on his behalf. Here, ‘A’ is principal and
‘B’ is Agent. The relationship between ‘A’ and ‘B’ is called Agency.

MEANING AND DEFINITION OF AGENT AND PRINCIPAL

Section 182 of the Indian Contract Act 1872 defines the term ‘AGENT’ and
‘PRINCIPAL’ as follows:

“An Agent is a person employed to do any act for another or to represent another in
dealings with third persons. The person for whom such act is done, or who is so represented,
is called the Principal”.

In an agency one person (principal) employs another person (agent) to represent him
or to act on his behalf, in dealing 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 authorised to do an act on behalf of the principal. If ‘M’ authorise his
agent to sell his car to a third person and he does so, ‘M’ become bound for the sale of the car
to the third person in the same way as if ‘M’ himself contracted to sell the car to the third
person. The agent is only a connecting link between his principal and the third person.
Contracts entered into through an agent and obligation arising from acts done by an agent,
may be enforced in the same manner, and will have the same legal consequences, as if the
contract had been entered into and the acts done by the principal in person.

WHO MAY EMPLOY AS AGENT

Section 183 says that “any person who is of the age of majority according to the law
to which he is subject, and who is of sound mind, may employ an agent”. In other words, any
person, who is a major and is of sound mind, may appoint an agent.

WHO MAY BE EMPLOYED AS AN AGENT

Section 184 says “As between the principal and third persons, any person may
become an agent, but no person who is not of the age of majority and sound mind can
become an agent, so as to be responsible to the principal according to the provisions in that
behalf herein contained”.

Section 185 lays down that consideration is not necessary for creation of an agency.
However, “knowledge of the Agent is Knowledge of the Principal” is the basis for the
appointment of an agent. Knowledge and experience of an agent on the particular work is

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very important factor. A person appointed as an agent uses his knowledge and skill for his
principal, for which the agent is entitled for a remuneration, commission etc., as agreed
between them, or as per the customs and usages.

KINDS OF AGENTS:

The term agent applies to anyone who by authority performs an act for another, and
includes a great many classes of persons to whom distinctive names are given. There may be
various types of agents whose powers and duties are settled by usage and custom of trade
recognized by the courts of law. The important one are classified as under:

1. Express or Implied Agents: An express agent is one who is appointed verbally or by

writing. An implied agent is one whose appointment is to be inferred from the conduct of the
parties.

2. General, Special or Universal Agents:  A general agent is one who is employed to

transact generally all the business of the principal in regard to which he is employed. A
special agent has only authority to do some particular act or represent his principal in some
particular transaction. A universal agent is one who is authorized to transact all the business
of his principal of every kind and to do all the acts which the principal can lawfully do and
can delegate.

3. Sub-agent:  An agent derives his authority directly from the principal. A sub-agent derives
his authority from the agent who has been appointed to do the act.

4. Mercantile Agent: One broad classification of agents is mercantile or commercial agents.

A mercantile agent is a person who is authorised by a principal to buy or sell the goods or to
raise a loan by using principal goods as a security. A mercantile agent may be classified
under the following heads:

1. Auctioneer:
An auctioneer is an agent who is appointed to sell goods at a public auction for
remuneration. He may or may not be entrusted with the possession or control of the goods
which he sells. He may be agent both for the seller and buyer. The authority vested in him is
to sell the goods only, and not to give warranties on behalf of the seller, unless expressly
authorised in that behalf. An auctioneer is an agent whose business is to sell goods or other
property by auction, i.e., by open sale. He is a mercantile agent within the meaning of Section
2(9) of the Sale of Goods Act. If the owner of the goods puts him in possession of the goods
although the authority to sell has not been conferred in him, a buyer in good faith from such
an auctioneer will get a good title in respect of the goods. An auctioneer has implied authority
to sell the goods without any restriction. Hence a sale by him in violation of the instruction is
binding on the owner. If the owner directs the auctioneer not to sell below a reserve price and
the auctioneer sells it below that price, the sale is even then binding on the owner except in
cases where the buyer knew that there was limitation on the auctioneer’s authority. 

2. Factors:

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 A factor is a mercantile agent who is entrusted with the possession of the goods
for the purpose of sale. He is a person to whom goods are consigned for sale by a
merchant residing abroad. He has also the power to sell goods on credit and also to
receive the price from the buyer. He usually sells the goods in his own name. He
cannot barter or pledge the goods. He has a general lien for the balance of account as
between himself and the principal. If the owner has put a factor in possession of the
goods or the document of title but without authorising him to sell the goods, the sale
of goods by him will convey a good title to a bona fide buyer.
3. Brokers:
A broker is an agent who has an authority to negotiate the sale or purchase of
goods on behalf of his principal, with a third person. A broker is a mercantile
agent who is employed to make contracts for the purchase and sale of goods for a
commission called brokerage. Unlike a factor, he himself has no possession of the
goods. He merely makes the two parties to enter into a contract. He gets his
commission whenever any transactions materialises through his efforts. His
business is to find purchasers for those who wish to sell, and sellers for those who
wish to buy. His duty is to bring parties together to bargain for them in various
matters. He makes contracts in the name of his principal and not in his own name.
He is a mere negotiator or in senses a middleman. 

4. Del Credere Agents:

A Del Credere (Italian word which means belief or trust) agent, is one who,
selling goods for his principal on credit, undertakes for an additional commission
to sell only to persons who are absolutely solvent. Generally, the function of an
agent is over after a contract is established between his principal and a third
person. He is not answerable to his principal for the failure of the third person to
perform the contract. A del Credere agent constitutes an exception to this rule. He
is a mercantile agent, who, on the payment of some extra commission, known as
del Credere commission, guaranteed the performance of the contract by the third
person. If in such a case the third person, for instance, fails to pay for the goods
supplied to him, the principal can bring an action against the del Credere agent for
the same. The liability of the del Credere agent, like that of a surety is secondary
and the same arises if the third person fails to pay to the principal what is due
under the contract.
5. Commission Agent: 

A commission agent is a mercantile agent who in consideration of a certain

commission engages to purchase or sell goods for his principal. He buys and sells
goods in the market on the best terms and in his own name. His only interest in the
transaction is his commission. All profits and losses accrue to the principal. A
commission agent may or may not be in actual possession of the goods. His position
is very similar to that of the broker. 

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 DIFFERENCE BETWEEN AN AGENT AND A SERVANT
1.  Scope of authority:
An agent can create a contractual relationship between the  principal and third
parties. But a servant cannot create contractual relationship  between its employer and
third parties.
2.  Remuneration:
An agent  receives  commission  for his services. A servant is generally
paid wages or salary.
3. On whose behalf:
An agent may work for several principals at the same time. A servant can serve
only one master at a time.
4. Control:
An agent is not subject to direct control and supervision of the principal. He is often
discretion. But a servant acts under the direct control and supervision of his master and must
follow all his reasonable order.
5. An agent is bound to follow all the lawful instructions of the principal but he is not
subjected to the direct control and supervision of the principal. A servant acts under the direct
control and supervision of his employer and is bound to follow all reasonable orders given to
him in the course of his employment.
6. A principal is liable for the wrongs of his agent done within the scope of his authority. A
master is liable for the wrongs of the servant if they are committed in the course of his
employment.

DIFFERENCES BETWEEN AGENT AND INDEPENDENT CONTRACTOR:

1. An independent contractor is employed to act for another but he does the work
independently of the employers control or interference. An agent, on the other hand, is
bound to act within the scope of his express or implied authority.
2. An independent contractor is personally liable for all acts done by him. An agent only
represents his principal in dealings with third parties and is not personally liable for
acts done by him within the scope of his authority.

ESSENTIAL ELEMETNS OF CONTRACT OF AGENCY:

A Contract of Agency has all the essentials of a valid contract, with some special
features of its own. The essentials of agency are as follows:

1. Principal must be Competent to Contract:

Section 183 of the Contract Act clearly provides that, “Any person, who is of
the age of majority according to law to which he is subject, and who is sound
mind, may employ as an agent”. Thus principal should be competent to
contract. It may however noted that Section 183 requires a person to be major
and of sound mind to employ agent. It is however clear that a minor cannot
employ an agent and the appointment of an agent by a minor will be void.
2. Any person may become an Agent:
It has been aptly remarked by Anson, “Full contractual capacity is not
necessary to enable a person to represent another as agent. An infant can be an
agent, although his capacity may shield him from liability to his principal.”
Thus although a minor cannot employ an agent yet he may become an agent
but since he is incompetent to contract, he will not be responsible to his
principal.

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 3. No Consideration is Necessary for the Creation of an Agency:
Section 185 provides that “No consideration is necessary to create an agency”.
This is yet another exception to the general rule enshrined in Section 25 that
an agreement without consideration is void. Section 25, however, provides
three exceptions to this general rule. This may be treated as the fourth
exception. The fact that the principal has agreed to be represented by the agent
is sufficient ‘detriment’ to the principal to support the contract of agency.
4. Agreement between the Principal and the Agent:
According to Section 184, agency depends on agreement but not necessarily
on contract. As between the principal and third persons, any person may
become an agent.
5. Intention of the Agent to act on behalf of the principal:
Whether a person does intend to act on behalf of another is a question of fact.
Where a person does intend to act on behalf of another, agency may arise
although the contract between the parties provides that there is no such
relationship.

RULES OF AGENCY:

Followings are the general rules of agency:

1. Whatever a person can lawfully do himself, he may also do the same through an
agent:
Whatever a person can do personally, he can do through an agent. This rule is of
course subject to certain well-known exceptions as when the act to be performed is
personal in character(e.g. marriage) or his annexed to public office(e.g., that of a
Magistrate).
2. He who acts through another does by himself:
He who does an act through another does it by himself (qui facit per, altum facit per
se). This, in other words, means that the acts of an agent, subject to certain conditions,
are acts of the principal. Section 226 clearly provides that an agents acts and contracts
will have the same legal consequences as if the contracts had been entered into and
the acts done by the principal in person.
For Examples: (a) T buys goods from A, knowing that he is an agent for their sale,
but not knowing who the principal is. A’s principal is the person entitled to claim
from T the price of goods. T cannot in a suit by the principal set off against that claim
a debt to himself from A.
(b) A being P’s agent, with authority to receive money on his behalf, receives from T
a sum of money due to P. T is discharged of his obligation to pay the sum in question
to P.

CREATION OF AGENCY:

An act done by an agent on behalf of the principal binds the principal towards a third
person. The relationship of Principal and Agent between the person represented and the
person representing has to exist in order that the principal’s liability towards the third person,
arises. Agency is used to denote the relation which exists where one person has an authority

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or capacity to create legal relations between a person occupying the position of principal and
third parties. The relation of agency arises when one person, called the ‘agent’ has authority
to act on behalf of another person called the ‘principal’ and consents to act. An agency may
be created in any one of the following ways:

1. Agency by Express Agreement(Section- 186):

As per Section 186 of the Indian Contract Act, 1872, an agency may be
created by an express agreement. When an express contract of agency is entered into
between a principal and an agent, the agency is said to be created by express
agreement. An express agreement of agency between a principal and his agent may be
in writing or oral. However, in most cases, an express agreement of agency is created
through the execution of a formal power of attorney on a written and stamped paper,
specifying the scope of the authority of the agent. Again, in certain cases, say, to
execute a deed or sale or purchase of land, an agent, if any, is required to be appointed
by executing a formal power of attorney on a written and stamped paper.
2. Agency by Implied Agreement(Section-187):
As per section 187 of the Contract Act, 1872, an agency may also be created by an
implied agreement. An agency is said to have been created by an implied
agreement, when there is no express agreement appointing the agent, but the
agency agreement is implied either from the conduct of the parties or from the
relationship between them or may be inferred from the circumstances of the case.
Let us discuss this with an example:
A woman allowed her son to drive a car for her, she paying all the expenses of
maintenance and operation of the car. The son caused an accident injuring his
wife. The son’s wife filed a suit against her mother in law for damages for the
injury caused to her by the son as her agent. It was held by the Court that the son’s
wife could sue the mother in law for the fault of her son, as the son was an implied
agent of the mother.
‘A’ owns shop in Bangalore, living himself in Calcutta, and visiting the shop
occasionally. The shop is managed by ‘B’, and he is in the habit of ordering goods
from ‘C’ in the name of ‘A’ for the purpose of the shop and of paying for them out
of ‘A’ s knowledge. ‘B’ has an implied authority from ‘A’ to order goods on
credit from ‘C’ in the name of ‘A’ for the purpose of the shop.
As an implied agency may be created from the conduct, situation or
relationship of the parties. It may be inferred from the circumstances of the case.
Implied agency may take the forms of:
(a) Agency of Estoppel:
An implied agency may arise by estoppels. An agency by estoppels is based
on the doctrine of estoppels, which provides that “where a person, by words
spoken or written, or by his conduct, wilfully leads another person to believe that
a certain state of affairs exists; he is stopped or precluded from denying
subsequently the fact of that state of affairs”. Section 237 of the Contract Act
which deals with agency by estoppels, provides that “Where an agent has, without
authority. Done acts or incurred obligations to third persons on behalf of his

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 principal, the principal is bound by such acts or obligations if he has by his words
or conduct induced such third persons to believe that such acts and obligations
were within the scope of the agents authority”.
So, when a person (a principal), by his conduct or by written statements or by
spoken words, wilfully leads others to believe that a certain person is his agent,
he is estopped form denying the agent authority subsequently, although the agent
does not, in fact, possess any such authority, whatsoever. An agency created under
such a circumstances is called agency by estoppel.
For example: ‘A’ tells ‘B’ in the presence and within the hearing of ‘C’ that
he is ‘C’s agent. ‘C’ does not deny this statement, and keeps quite. ‘B’, on the
faith of this statement, subsequently, enters into a contract with ‘A’ believing
honestly that ‘A’ is ‘C’s agent. In this case, there is an agency created by estoppel,
and ‘C’ is estopped from denying the existence of agency, even though such an
agency did not exist in fact.
(b) Agency by Holding out:
Agency by holding out is based on the doctrine of holding out. The doctrine of
holding out is, no doubt, a part of the law of estoppel. But in the case of agency by
holding out, there is some affirmative or positive act or conduct by the principal to
establish the agency subsequently. In the case of agency by holding out also, the
principal is bound by the acts of the held out agent as he has induces the third
party by some affirmative or positive act or conduct to believe that the acts of the
agent are done with his authority.
For instance: A allows his servant habitually to purchase goods for him on
credit from B and later on pays B for the goods bought from him on credit. On one
occasion, he pays cash to his servant and asks him to purchases goods from B for
cash. The servant misappropriated the money and purchases goods from B on
credit for A. in this case, there is an agency by holding out as A has held out his
servant as his agent on prior occasion.
A allowed his servant B to take goods on credit from C and A was making
payment. Later A terminated B as his agent, but the termination was not
communicated to C.B as usual took goods on credit from C. Now A cannot deny
B as his agent and avoid payment.
Similarly, when a husband and wife are living together, if the wife buys
necessaries of life for the family from a provision merchant and the husband pays
the bills of the provision merchant later on, there is said to be an agency by
holding out, as the husband has held out his wife as his agent for the purchase of
provisions for his family by paying the bills of the provision merchant later.
(c) Agency by Necessity:
Sometimes, circumstances force a person to act as an agent for another
without any express authority from him. In such a case, there is said to be an
agency by necessity. In other words agency of necessity is created in cases of
emergencies. In these cases, the persons who perform their services as agents do
not seek prior permission or appointment from the principals. The principals are
also in certain difficult situations and they could not give their assent or refusal,

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 but accept the services rendered by such persons. Therefore law confers authority
on a person to act as an agent for another, without the consent of that person. Such
an agency is called agency by necessity.
A’s horse, sent by train, arrived at a station with no body to receive. The
railway company fed the horse. It was held that the railway company was an agent
by necessity, and was entitled to recover the expenses incurred for feeding the
horse from the owner, A.
In Matheson v/s Smiley, an unconscious person was brought by some
unknown persons before a surgeon. He attempted to commit suicide. The surgeon
tried to save his life. He also incurred huge expenses. The Court held that the
surgeon was entitled to receive the medical expenses and service charges.
Sims & Co. v/s Midland Rly. Co.: in this case, the plaintiff sent certain
quantity of butter to a dealer by the defendant railway. Due to a strike, the train
was stopped in the middle of the way. The defendant sold butter, it being of
perishable nature, and remitted the amount to plaintiff. The plaintiff sued the
defendant for damages. The court held that the defendant acted as an agent in
necessity and in good faith and he was not liable.
3. By Ratification (Section 196 to 200):
An agent must have express or implied authority of the principal to contract on
behalf of the principal. Otherwise, the principal is not bound by the contract entered
into by the agent. Sometimes, an agent contracts or acts on behalf of his principal
without his previous permission, but later on the principal owns or approves the act as
if it were done with his authority or instructions. In such a case, there is said to be an
agency by ratification. Agency by ratification Also known as ex-post facto agency
(agency arising after the event)
By ratification we mean an act which the principal confirms unauthorised acts
of the agent. That is to say, even if the agent enters into a contract without the
authority, consent or knowledge of the principal may, if he likes, ratify it and thereby
accept the benefits and obligations arising out of such a contract.
For example: a without having authority of B acts as B’s agent and enters into
a contract with C. the contract will be binding on B, if he ratifies or approves of the
same.
Sections 196-200 lay down the provisions relating to Agency by Ratification.
Section 196 refers to right of persons as to acts done for him without his authority.
Section 197 says that ratification may be expressed or implied. Section 198 speaks
about knowledge requisite for valid ratification. Section 199 deals with effect of
ratifying unauthorised act forming part of a transaction and finally Section 200
provides for ratification of unauthorised act cannot injure third person.

Essentials of Valid Ratification:

To make ratification valid following conditions must be fulfilled:

1. The Act Should Be Done On Behalf Of Another Person Ratifying:

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 A person can ratify only that which is purported to have been done for him
and cannot ratify that which is purported to have been done for somebody else.
Act done by a person on his own account cannot be ratified. Only when an act
is done on behalf of the ratifier, such act can be ratified.
2. The Principal Should Be In Existence, And Competent To Contract When
The Act Is Done:
For a valid ratification it is essential that principal must have been in existence
at the time when the act was done. No body as an agent can bind by contract a
principal who does not exist at the date of the contract. Thus, a company
cannot ratify or adopt a contract which was entered into by the promoters on
its behalf before its incorporation. Similarly, a contract made on behalf of a
child in the mother’s womb cannot be ratified by him when the child attains
the age of majority.
3. Ratification May Be Express Or Implied:
Ratification must be in express words or in writing and it can also be implied
from conduct of the person on whose behalf the act was done.
For example: A without authority buys goods for B. afterwards B sells them to
C on his own account; B’s conduct implies a ratification of the purchase made
for him by A.
4. Ratification Should Be With Full Knowledge Of The Facts:
Valid ratification involves knowledge of all material facts on the part of the
ratifier. No valid ratification can be made by a person whose knowledge of the
facts of the case is materially defective. It is the actual knowledge and not
mere opportunity for acquiring actual knowledge which is essential for valid
ratification
5. Ratification Should Be Of The Whole Transactions:
A contract cannot be ratified in parts and repudiate in part. For valid
ratification, the whole transaction must be ratified. Once a part is accepted, it
is an implied acceptance of the whole.
6. Ratified acts should not be injurious to third person:
Ratification is equivalent to previous authority. An exception to this rule is
provided in section 200. Which says that when interest of third parties are likely to
be affected, the principle of ratification does not apply. Ratification cannot relate
back to the date of contract if third parties have in the intervening time acquired
rights.
7. Ratification Should Be Made Within A Reasonable Time:
The ratification of a contract must be made within a reasonable time after the
contract is made. Where time is expressly limited, ratification after the time
has expired will not serve.
For example: The time for commencement of performance of the contract was
September but the Board ratified the contract in October, when the defendant
had already withdrawn his contract. Ratification was held to be too late.
8. Ratification Must Be Communicated:

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 There can be no valid ratification of an act unless it is communicated to the
other party. Ratification cannot keep his thoughts to himself.
4. By Operation of Law:
Sometimes Agency is created by operation of law. When a company is
formed, its promoters act as its agents by operation of law. Similarly, partners are the
agents of the Partnership Firm.

RIGHTS AND DUTIES OF AN AGENT

RIGHTS OF AN AGENT:
The Act confers a number of rights of an agent, and imposes some corresponding
duties on the Principal. They are as follows:
1. Rights of Retainer[ Section- 217]:
The agent may retain, out of any sums received on account of the principal in the
business of the agency, all moneys due to himself in respect of his remuneration and
advances made of expenses properly incurred by him in conducting such business.
The agent has a duty to pay to his principal all sums received on principals account.
But he has also a right to retain, out of any sums received on account of principal in
the business of the agency, all money due to himself in respect of advances made or
expenses properly incurred by him in conducting such business and also such
remuneration as may be payable to him for acting as agent. Similarly, when an agent
sells his principals goods, he may detain moneys received, for his remuneration on
account of the goods sold by him. Such right can be exercised by an advocate also but
the lien must be confined to the costs incurred in that particular case.
2. Right to Receive Remuneration[Section- 219]:
Where an agent agrees to serve for nothing, he cannot claim remuneration. But where
the services rendered by the agent is entitled to receive the agreed remuneration. The
agent is entitled to his agreed remuneration or if there is no agreement to a reasonable
remuneration. But in the absence of any special contract payment for the performance
of any act is not due to the agent until the completion of such act.
Examples: (a) A was appointed an agent to secure orders for advertisements in a
newspaper. The commission was agreed to be paid when an advertisement was
published. After A had obtained orders for certain advertisements, the agency was
terminated. Held, he was entitled to commission on orders obtained by him although
the advertisements were not published. [Sellers v/s London County Newspaper,
1951]
(b) An agent was appointed to introduce a customer to purchase the principal’s
property. He did introduce one customer: the sale was settled and earnest money paid.
The sale fell through because of the customer’s inability to find money. Held, the
agent was entitled to his agreed commission. [Sheik Farid Baksh v/s Hargulal
Singh, A.I.R. (1937) All. 46]
An agent who is guilty of misconduct in the business of the agency is not
entitled to any remuneration in respect of that part of the business which he has

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 misconducted. Thus section 220 penalises an agent who misconducts himself and
debars such an agent from claiming any remuneration.
3. Right of Lien [Section 221]:
In the absence of any contract to the contrary, an agent is entitled to retain goods,
papers and other property. Whether movable or immovable, of the principal received
by him, until the amount due to himself for commission, disbursements and services
in respect of the same has been paid or accounted for to him. This lien of the agent is
particular lien. It is confined to claims arising in connection with the goods or
property in respect of which the right is claimed.
4. Right to be indemnified against Consequences of Lawful Acts [Section.222]:
A principal is bound to indemnify an agent against losses sustained by an agent in the
course of the agency business. An agent can claim indemnity only in respect of lawful
acts done by him in exercise of the authority. Thus, where the agent incurred damages
and expenses in defending action on behalf of principal, he is entitled to
reimbursement of the same. If the contract is illegal, the claim of the agent against the
principal cannot be enforced.
Example: B at Singapore under instruction from A of Calcutta contracts with C to
deliver certain goods to him. A does not send the goods to B and C sues B for breach
of contract. B informs A of the suit and A authorises him to defend the suit. B is
compelled to pay damages and costs and incurs expenses. A is liable to B for such
damages, costs and expenses.
5. Right to compensation [Section 225]:
The agent has a right to be compensated for injuries sustained by him be neglect or
want of skill on the part of the principal. Thus where the principal keeps any
dangerous premises and the agent meets an accident; the principal is liable to pay
compensation to the agent.
6. Right to be indemnified against consequences of acts done in good faith [Section-
223]:
When an agent does the act in good faith, the employer is liable to indemnify the
agent against the consequences of that act even though such act causes injury to the
rights of the third persons. Section 222 grants indemnity in respect of lawful acts of
the agent while section 223 grants indemnity in respect of unlawful acts done by the
agent in good faith. But the agent cannot claim indemnity, in respect of acts which he
knows to be unlawful. Thus, where the agent buys smuggled goods for the principal
the principal is not liable to pay.
7. Right of stoppage of goods in transit:
This right is available to the agent in the following two cases:
(1) Where he has bought goods for his principal by incurring a personal liability, he
has a right of stoppage in transit against the principal, in respect of the money
which he has paid or is liable to pay. This right of the agent is similar to that of the
unpaid seller.
(2) Where he is personally liable to the principal for the price of the goods sold, he
stands in the position of an unpaid seller towards the buyer and can stop the goods
in transit on the insolvency of the buyer.

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 DUTIES OF AN AGENT:
1. Duty to follow the instructions of the principal(Section- 211):
It is the duty of an agent to follow the instruction given by the principal. In the
absence of any such directions, he must act according to the customs which prevails in
doing business of the same kind at the place where he conducts such business.
According to section 211, an agent has a duty to follow the directions given to him by
the principal.
1. An agent is bound to conduct the business of his principal according to the
directions given by the principal
2. If there are no such directions, the agent should conduct the business according to
the same kind at the place where the agent conducts such business.

Examples: An advocate being an agent of his client. If he acts in a manner contrary to

the directions given by his client, or against the custom, or practice of his profession
and any loss is caused to his client thereby, he must make good such loss.

(a) A, an agent, engaged in carrying on for B a business, in which it is the custom to

invest from time to time, at interest, the money which may be in hand, omits to
make such investment.
(b) B, a broker, in whose business, it is not the custom to sell on credit sells goods of
A on credit to C, whose credit at the time was very high. C, before payment,
becomes insolvent. B must make good the loss to A.
2. Duty to carry out the work with care, skill and Diligence (Section-212):
An agent is bound to conduct the business of the agency with as much skill as is
generally possessed by person’s engaged in similar business, unless the principal has
notice of his want of skill. He is always bound to act with reasonable diligence, to use
skill as he possesses, and to make compensation to his principal in respect of the credit
consequences of his neglect, want of skill or misconduct. But he is not liable to his
principal in respect of loss or damage which is indirectly or remotely caused by such
neglect, want of skill.
Examples: A, an agent for the sale of goods, having authority to sell on credit, sells to
T. on credit, without making the proper and usual inquiries as to the solvency of T.T,
at the time of such sale, is insolvent. A must make compensation to his principal in
respect of any loss thereby sustained.
3. Duty to render accounts to the principal(Section-213):
Another duty of an agent is to render proper accounts to his principal on demand. This
means that he should maintain proper accounts of the sums belonging to the principal
which are in his hands; he should render true accounts to his principal.
4. Duty to communicate with principal in case of Difficulty (Section- 214):
It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in
communicating with his principal, and in seeking to obtain his instructions.
5. Duty not to deal on his own account (Section-215 &216):

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 An agent must not deal on his own account in the business of the agency without first
obtaining the consent of the principal and acquainting him with all the material
circumstances which have come to his knowledge.
If an agent without the knowledge of his principal, deals in the business of the agency
on his own account, the principal may-
(1) Repudiate the contract or transactions, if the case shows either that any material
fact has been dishonestly concealed from him by the agent or that the agent has
been disadvantageous to him. For example: P directs A to sell his property. A
buys the property for himself in the name of T. P, on discovering that A has
bought the property for himself, may repudiate the sale, if he can show that A has
dishonestly concealed any material fact, or that the sale has been disadvantageous
to him.
(2) Claim from the agent any benefit which may have resulted to him from the
transactions. For example: P directs A, his agent, to buy a certain house for him.
A tells P it cannot be bought, and buys the house for himself. P may, on
discovering that A has bought the house, compel him to sell it to him at the price
he gave it for.
6. Duty to pay the amount received for the principal (Section-217):
An agent is bound to pay to his principal all sums received on his account. He may
deduct there from all moneys due to himself in respect of advances made or expenses
properly incurred by him in conducting such business and also such remuneration as may
be payable to him for acting as agent.
7. Duty not to use the information, received in the course of agency, against the
principal:
It is the duty of the agent to pass on any information which he receives in the course
of the agency to his principal. Where he uses any such information against the interest of
principal and the principal suffers a loss, he is bound to compensate the principal. The
principal may also restrain the agent from using such information by an injunction.
8. Duty to protect the interest of the principal in case of his death or insanity:
When an agency is terminated by the principal dying or becoming of unsound mind,
the agent is bound to take, on behalf of the representatives of his late principal, all reasonable
steps for the protection and preservation of the interest entrusted to him.
9. Duty not to make secret profits from agency:
An agent occupies fiduciary position. He must not, except with the knowledge and
assent of the principal, make any profit beyond the agreed commission or remuneration.
Examples: An auctioneer received from the buyer commission in addition to what his
principal paid him as commission. Held, he was bound to hand over the total commission to
the principal.
If the agent makes profit or takes a bribe from the other party with whom he contracts
on behalf of his principal, the principal may-
1. Recover the amount of the secret profit from the agent
2. Refuse to pay the agent his commission or remuneration
3. Dismiss the agent without notice
4. Repudiate the contract with the other party

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10. Duty not to delegate authority:
Ordinarily, an agent cannot further delegate the work which has been delegated to him
by his principal. Section 180 provides that an agent cannot delegate his authority or employ
another person to perform acts which he has expressly or impliedly undertaken to perform
personally. It is based on the principle that a delegate cannot further delegate. But under
certain circumstances agent can delegate his authority to sub-agent with the consent of
principal.

RELATION OF PRINCIPAL WITH THIRD PARTIES

It has been noted above that when an agent acts on behalf of the principal, he creates
relationship between the principal and the third person. For contracts entered into through an
agent, the principal becomes bound towards a third person as if he entered into the contract
himself. Section 226 makes the following provisions regarding the enforcement and
consequences of contracts entered into through an agent:

Section 226- Effect of Agency on Contracts with Third Persons:- “ Contracts entered
into through an agent and obligations arising from the acts done by an agent, may be enforced
in the same manner, and will have the same legal consequences, as if the contracts had been
entered into and the acts done by the principal in person”.

For example: (a) A buys goods from B, knowing that he is an agent for their sale but
not knowing who the principal is. B’s principal is the person entitled to claim from A the
price of the goods and A cannot, in a suit by the principal, set off against that claim a debt
due to himself from B.

(b)A being B’s agent, with authority to receive money on his behalf, receives from C a sum
of money due to B. C is discharged of his obligation to pay the sum in question to B.

Authorised and Unauthorised Acts:

It has already been noted that the principal is liable for such acts of the agent for
which the authority has been conferred upon him. Such authority may be express or implied.
The principal’s liability also arises for acts done in a situation of emergency. Principal can
also be made liable towards third person on grounds of estoppel. Even if the acts are done
without the principal’s authority, he becomes bound when there is ratification of such acts by
him. Apart from that, there is a presumption of agency in ‘husband and wife’ relationship so
as to make the husband liable for the acts of his wife.

In addition to the kind of acts mentioned above for which, as it has already been
discussed earlier, herein below are being discussed various other aspects of principal’s
liability towards the third person:-

1. When agent exceeds authority;

2. When agent receives notice on principal’s behalf;
3. When agent commits a fraud or some other wrong against a third person.
Let us discuss this in detail.

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 1. Principle’s liability when agent exceeds authority:
A principal is bound only for such acts of the agent which are within the
authority of the agent. If the agent’s act is in excess of the authority, the principal is
not liable for the same. Sometimes a part of the act done by the agent may be within
the authority and the other part outside it. If the two parts can be separated, then the
principal is bound by such part only as is within the authority, and he is not liable for
the part of the act which is outside the authority. If the two parts cannot be separated,
then the principal is not bound to recognise the transaction.
In Ahammed v/s Mamad Kunhi: In this case, an agent was authorised by
power of attorney to sell half right over certain property. He however, entered into an
agreement with purchaser-plaintiff to sell the entire property. The authorised and the
unauthorised portions were separable. It was held that specific performance of that
half portion of the property could be claimed by the purchaser under the Specific
Relief Act, in respect of which the authority for sale was given to the agent.
2. Principal’s liability for notice to the agent:
According to Section 229,any notice given to, or information obtained by the
agent, provided it be given or obtained in the course of the business transacted by him
for the principal, shall, as between the principal and third person have the same legal
consequences as if it had been given to or obtained by the principal.
3. Principal’s liability for agents fraud, misrepresentation and torts:
When an agent, acting in the course of the principal’s business, makes
misrepresentation or commits a fraud, it has the same effect on agreements made by
such agent as if such misrepresentation or fraud had been made, or committed by the
principal. If the agent acts in the course of the principal’s business that entitles the
third person to avoid the contract on grounds of fraud or misrepresentation.
For example: A being B’s agent for the sale of goods, induces C to buy them
by misrepresentation, which he was not authorised by B to make. The contract is
voidable, as between B and C, at the option of C.

DELEGATION OF AUTHORITY:

The general rule is that an agent is not entitled to delegate his authority to another
person without the consent of his principal. “Delegatus non potest delegare” is the maxim
which means that a person to whom authority has been given cannot delegate that authority to
another. Section 190 also prohibits delegation of such authority. This is because when the
principal appoints a particular agent to act on his behalf, he relies upon the agent’s skill,
integrity and competence.

Sub-Agent:

A ‘sub agent’ is a person employed by, and acting under the control of the original
agent in the business of the agency (sec-191). This means he is the agent of the original

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agent. The relation of the sub-agent, to the original agent is, as between themselves, that of
the agent and principal.

Exception: Section-190 provides that an agent may appoint a sub-agent and delegate the
work to him if-

(a) There is a custom of trade to that effect, or

(b) The nature of work is such that a sub-agent is necessary
(c) Where the ‘principal is aware of the intention of the agent to appoint a sub-agent but
does not object to it.
(d) Where unforeseen emergencies arise rendering appointment of a sub-agent but does
not object to it.
(e) Where the act to be done is purely ministerial not involving confidence or use of
discretion.
(f) Where power of the agent to delegate can be inferred from the conduct of both the
principal and the agent.
(g) Where the principal permits appointment of a sub-agent.

For Example:

(a) A banker authorised to let out a house and collect rent may entrust the work to an
estate agent.
(b) A banker instructed to make payment to a particular place may appoint a banker who
has an office at the place.

Relationship between principal and sub-agent:

As a general rule, an agent cannot delegate his authority to a sub-agent. But in certain
exceptional cases, he is permitted to do so. In such cases, the delegation of authority to a
sub-agent is proper. In all other cases, the appointment of a sub-agent is improper. The
legal relation between the principal and the sub-agent depends upon the crucial question,
as to whether the appointment of the sub-agent is proper or improper.

1. Where a sub-agent is properly appointed:

(a) The principal is bound by the acts of the sub-agent as if the sub-agent ordinarily
appointed by the principal
(b) The agent is responsible to the principal for the acts of the sub-agent.
Example: A, a carrier, agreed to carry 70 bags of cotton waste from Mysore to
Bangalore by a truck. A asked A1, another carrier, to carry the goods. The goods
were damaged in transit. Held, A was liable even though it was proved that A1
was the carrier.
(c) The Sub-agent is responsible for his acts to the agent, but not to the principal
except in case of fraud or wilful wrong.
2. Where a Sub-Agent is not properly appointed:
Where an agent, without having authority to do so, has appointed a sub-agent,
the agent is responsible for the acts of the sub-agent to the principal and to the third

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 parties. The principal, in such a case, is not represented by or responsible for the acts
of the sub-agent, nor is the sub-agent responsible to the principal.

Co- Agent or Substituted Agent:

A co-agent or a substituted agent is a person who is named by the agent, on an express

or implied authority from the principal, to act for the principal. he is not a sub-agent but an
agent of the principal for such part of the business of the agency as is entrusted to him. He is
the agent of the principal, though he is named, at the request of the principal, by the agent.

Examples: (a) P directs A, his solicitor, to sell his estate by auction and to employ an
auctioneer for the purpose. A names A1 an auctioneer to conduct the sale. A1 is not a sub-
agent, but is P’s agent for the conduct of the sale.

In selecting a co-agent for his principal an agent is bound to exercise the same amount
of discretion as a man of ordinary prudence would exercise in his own case; and if he does
this he is not responsible to the principal for the acts or negligence of the co-agent.

Difference between sub-agent and substituted agent

1. A sub-agent does his work under the control of the agent whereas a substituted agent
works under the instructions of the principal.
2. There is no privity of contract between a sub-agent and the principal. The principal
cannot sue the sub-agent directly for any amount or money. Similarly, a sub-agent
cannot sue the principal for his remuneration. He is also not directly answerable to the
principal. Both the principal and the sub-agent can sue the agent. In the case of a
substituted agent, there is a privity of contract between him and the principal and both
can sue each other.
3. The agent is responsible to the principal for the acts of the sub-agent. But he is not
responsible to the principal for any act or negligence of the substituted agent.

EXTENT OF AGENTS AUTHORITY:

No man can become an agent of another person except by the will of that person. His
will be manifested in writing or orally, or simply by placing another in a situation in which
that other is understood to represent and act for the person who has so placed him; but in
every case, it is only by the will of the principal that an agency may be created. The authority
of an agent means his right or capacity to bind the principal. According to Sec-226, the acts
of an agent within the scope of his authority bind the principal. The authority of the agent to
bind the principal may be-
1. Actual or Real Authority, or
2. Ostensible or Apparent Authority, or
3. Agent’s Authority in an Emergency .

1. ACTUAL AUTHORITY: Actual authority of an agent is the authority conferred on

him by the principal. It may be expressed or implied.

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 a) Express Authority: An authority is said to be express, when it is given by words
spoken or written. Express authority is that which the principal directly grants to
the agent and includes all such powers as are proper and necessary for achieving
the purposes for which the agency was created. A power of attorney given to an
agent is an example of express authority.
b) Implied Authority: An authority is said to be implied when it is to be inferred
from the circumstances of the particular case, the usage of trade or business or the
conduct of the principal. It is an authority which the principal intends his agent to
possess or which is proper, usual and necessary to the exercise of the authority
actually grated. For example: (a) A is employed by P, residing in London, to
recover at Mumbai a debt due to P. A may adopt any legal process necessary for
the purpose of recovering the debt, and may give a valid discharge for the same.
2. OSTENSIBLE AUTHORITY: When an agent is employed for particular business,
persons dealing with him can presume that he has authority to do all such acts as arte
necessary or incidental to such business. Such authority of the agent is called
ostensible or apparent authority as distinguished from actual or real authority. The
scope of an agent’s authority is determined by his ostensible authority. If the act of an
agent is in excess of his actual authority, but is within the scope of his ostensible
authority, the principal will be bound by the act of the agent.
For Example: (a) P writes to T that A is authorised to sell his car. P privately
instructs A not to sell the car but merely to obtain T’s best offer. A sells the car to T
for Rs. 50,000. The sale is binding on T.
It is a well established principle that if a person employs another as an agent in
a character which involves a particular authority, he cannot by secret reservation
divest him of that authority. But if the third party knows of the limitation of the agents
ostensible authority, the principal will not be liable for such act of the agent.
For example: P leaves certain articles with A. An auctioneer, asking him not to
sell them below a stated price. A sells the article to T below the stated price. T knows
of P’s instructions to A. P can set aside the contract with T.

3. AGENT’S AUTHORITY IN AN EMERGENCY: An agent has authority in an

emergency; to do all such acts for the purpose of protecting his principal from loss as
would be done by a person of ordinary prudence, in his own case, under similar
circumstances.

PERSONAL LIABILITY OF AGENT:

An agent does all acts on behalf of the principal who can enforce and can be held
liable on a contract except where there is a contract to the contrary. An agent cannot
personally enforce contracts entered into by him on behalf of the principal, nor can such
contracts be enforced against him because there is no privity of contract and the passing of
consideration between him and the third party. A suit for specific performance is not
maintainable against the agent.
Section 230 of the Contract Act 1872 provides that, “In the absence of any contract to
the contrary, an agent cannot personally enforce the contract entered into by him on behalf of

19
his principal, nor is he personally bound by them.” The term in the absence of a contract to
the contrary, means that if there is such a contract, both the principal and the agent may sue
or to be sued on the contract.
For Example: The Principal sent goods through the railway to his agent. The railway
did not deliver the goods to the agent. The agent cannot sue the railway receipt confers no
ownership on him. The principal alone can sue the railway as consignor owner.
According to Section 230, an agent is presumed to have consented to be personally
liable in the following cases:-
1. Where the contract is made by an agent for the sale or purchase of goods for merchant
resident abroad;
2. Where the agent does not disclose the name of his principal;
3. Where the principal, though disclosed, cannot be sued.
In the three exceptional cases mentioned above, the presumption is that the
agent agrees to undertake personal liability. The personal liability of the agent
also arises in certain other situations, i.e. ,
4. When there is a contract for the agent’s personal liability.
5. When the agent makes a breach of some legal obligation.
6. When he untruly represents that he has an authority to act on behalf of the principals.

1. When an agent acts on behalf of Foreign Principal:

When an agent has entered into a contract for the sale or purchase of goods on
behalf of a principal resident of abroad, the presumption is that the agent undertakes
to be personally liable for the performance of such a contract. The object of this
provision is to avoid hardship to a third person which would be there in suing such a
principal, or enforcing a decree against him. The presumption is that in such case the
agent is personally bound can be rebutted by a contract between the third person and
the agent.
In Midland Overseas /s CMBT (AIR 1999 Bombay 401): It has been held
that due to circumstances indicate that the agent acting on behalf of foreign principal
did not undertake to be personally liable, than his liability does not arise.
In W.B. Essential Commodities Supply Corporation Ltd. v/s Korean T.T.
Corporation (AIR 2002, al, 211): There was contract of carriage of goods from
foreign port to port in India. For short landing of goods, the plaintiff sued the foreign
principal and then Indian agent also. It was held that the plaintiff did not have right to
sue both. When action suit was filed against foreign principal, the agent was
automatically discharged from liability.
Section 230 provides option either to sue foreign principal or Indian agent.
Both of them cannot be sued.
2. Where the agent acts for an Undisclosed principal:
Where an agent does not disclose the principal, he is personally liable for such
a contract. When he acts in his own name, he is then regarded in the eyes of law, the
real contracting party. Thus the honorary secretary of a school was held personally
liable for the purpose of the school.(Bhojabahi v/s Hayen Samuel).

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3. When the principal, though disclosed, cannot be sued:
An agent incurres personal liability where he contracts on behalf of a principal
who though disclosed cannot be sued. Thus, an agent who contracts for a minor, the
minor being a not liable, the agent becomes personally liable. Similarly where
promoters buy goods on behalf of a projected company, they become personally liable
to pay for them. This provision does not create the liability of an agent, if the
principal, who cannot be sued, has entered into a contract directly with the third
person. It covers only such cases where the agent enters into a contract on behalf of a
principal, and he discloses the name of the principal, but the principal cannot be sued.
4. When there is a contract for the agent’s personal liability:
Section 230 which provides that an agent can neither enforce a contract nor is
personally liable for the same begins with the words: “In the absence of any contract
to that effect”. It means that whenever there is a contract indicating agent’s personal
liability, he can be made personally liable.
In Alliance Mills v/s India Cements Ltd, the agent entered into a contract for
the purchase of goods in his own name describing himself as the purchaser. He did
not disclose that he was acting as an agent. The contract note itself cast all obligations
on the purchaser. It was held that in such a situation, the agent could personally
enforce the contract, and also could be made personally liable for the same.
5. When an agent makes a breach of some legal obligation:
When there is some legal obligation such as contractual obligation or a
statutory duty cast upon the agent, he must fulfil the same, otherwise he renders
himself personally liable for the breach of such an obligation. Similarly, when the
agent commits a tort against a third person that also creates his personal liability for
the consequences thereof.
In Nepal Food Corporation v/s U.P. Import and Export Ltd. the plaintiff
loaded rice in a vessel of carriage by sea. The agent of the owner of the ship who was
under a contractual as well as statutory obligation to issues the bill of lading withheld
the same. It was held that by doing so, the agent had not only made a breach of his
contractual duties but also committed the tort of conversion. He along with his
principal, i.e., the ship owner was held to be liable for damage in respect of the loss
suffered by the consigner as a consequence of the delay in the issue of the bill of
lading.
6. Liability of Pretended Agent:
When an agent having no authority to act as a an agent does so, the person on
whose behalf the act is done, i.e., the principal has option either to disown the act or
to ratify the same. If the act is ratified, the same effects will follow as if the act had
been done by prior authority. If, however, the principal disown the act, i.e., he does
not ratify the same, the pretended agent himself will be liable.

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 TERMINATION OF AGENCY:

Section 201 to 210 of the Contract Act, 1872 deals with the termination of agency.
An agency may come to an end in a variety of ways.
Modes of Termination of Agency:
 By act of the Parties:
1. By agreement between the Parties:
An agency like any other contract may be terminated by the mutual consent of
the parties. Just as parties are at liberty to make any contract they please, so also
they are at liberty to unmake any contract that exists between them. Therefore, the
authority of an agent terminates, when the principal and the agent agree to
terminate it.
2. By Revocation of Authority by the Principal:
A principal as power to revoke the authority of the agent whenever he likes
unless the agent has an interest in the subject- matter of the agency or unless the
agent has exercised his authority so as to bind his principal. A principal can
revoke the authority of the agent at any time before it is executed. Thus, the
authority given to an auctioneer can be revoked at any time before the goods are
knocked down. According to section 207 revocations by the principal may be
either express or implied in the conduct of the principal. For example: A
empowers B to let A’s house. Afterwards A lets himself. This is an implied
revocation of B’s authority.
Revocation by the principal is, however, subject to the following conditions:
(a) Where the authority has been partly exercised, it cannot be revoked with
regard to acts already done in the agency.
(b) Where the agency is for a fixed period and the principal revokes the
authority of the agent before the expiry of the period, without sufficient
cause, the principal is bound to pay compensation to the for the resulting
loss.
(c) Before revoking the authority of the agent, reasonable notice of the same
should be given to the agent. In the absence of any such notice,
compensation must be paid by the principal to the agent.
(d) When an agent has an interest in the subject- matter of agency, it cannot be
revoked unless there is an express contract to the contrary permitting such
revocation. For example: A consigns 1,000 bales of cotton to B, who has
made advances to him on such cotton, and desires B to sell the cotton, and
to repay himself out of the price, the amount of his own advances. A
cannot revoke his authority, nor is it terminate by his insanity or death.

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 3. By Renunciation by the Agent:
As the principal can revoke the agent’s authority, so also the agent can also
renounce the agency. Section 206 requires that the agent must give his principal
reasonable notice of renunciation otherwise he will be liable to make good any
damage caused to the principal for want of such notice. In case of premature
renunciation, the agent will be liable in damages to the principal. An agent may
renounce the agency:
(a) By tendering resignation;
(b) By ceasing to discharge his duties;
(c) By mere abandonment of service;
(d) By setting up adverse title to the principal.

 By Operation of Law:
1. By the Completion of the Business of Agency:
When the business of the agency is completed, agency comes to an end. In the
case of agency for a fixed period, the agency terminates on the expiry of the fixed
period even though the business of agency may not have been completed. When the
agency is for the sale of the property, agency terminates on the completion of the sale
and does not continue until the payment of the price. Similarly, where a pleader is
appointed in a suit, the pleader’s authority is terminated with the judgment.
2. By Death or Insanity of the Principal or Agent:
Death or insanity of the agent or principal terminates the agency. On the death
of either the agent or principal, the agency is automatically terminated because a
person cannot act on behalf of non-existent person. Thus, where a client dies, his
pleader’s authority also terminates. Similarly, the relationship between agent and
principal comes to an end when principal or agent becomes insane, for a person of
unsound mind cannot contract.
3. By the Lapse of Time:
Where the agency is for a fixed period, it ceases to function after that period is
over. It is so whether the purpose of the agency is fulfilled or not. Where the
principal discontinues the business due to losses, the agency for a fixed period is
by no means terminated.
4. By the Insolvency of the Principal:
On the insolvency of the principal, the agency terminates. But since an agent
is merely a connecting link with the third parties, his insolvency may not
terminate the agency.
5. By the Destruction of the Subject- Matter:
Where the subject-matter for which an agency was created, ceases to exist, the
agency cannot survive. Thus, if an agent is asked to sell a house, and the house is
destroyed by fire, there is a cessation of the agency.

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6. By Subsequent Event Rendering the Agency Unlawful:
It may be that an act is unlawful when the agency was created but if it is
declared by law to be unlawful subsequently, agency cannot continue as that
would be unlawful. An agency that is unlawful due to declaration of war when the
principal or agent is deemed an alien enemy.

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