A Project

On

Termination of Agency

Subject: Contract-ll

[Submitted as a partial fulfilment of the requirements for

B.A. LL.B. (Hons.) 5 Year Course]

Session: 2021-2022

Submitted on : 25 June 2022

Submitted by: Submitted to:

Rahul Bagari Ms. Sakshi Poonia

Roll No. - 54 (Faculty)

Class- 4th Semester

Section- A

University Five Year Law College

University of Rajasthan, Jaipur

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 DECLARATION

I, Rahul Bagari, hereby declare that project titled "Termination of Agency"

is based on the original research carried out by me under the guidance and
supervision of Ms. Sakshi Poonia.

The interpretations put forth are based on my reading and understanding of the
original text. The book, article and website etc. which have been relied upon by me
have been duly acknowledged at the respective places in the text.

For the present project which I am submitting to the university, no degree or diploma
has been conferred on me before, either in this or in any university.

DATE: SIGNATURE
25 June 2022 Rahul Bagari
Roll No. - 54
Semester: 4th 'A'

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 CERTIFICATE

Ms. Sakshi Poonia ; Date: 25 June 2022

Faculty of Contract
University Five Year Law College
University of Rajasthan, Jaipur

This is certify that Mr. Rahul Bagari, student of 4th semester 'A' of University
Five Year Law College, University of Rajasthan has carried out the project
titled "Termination of Agency" under my supervision and guidance.

It is an investigation report of a minor project. The student has completed research

Work in my stipulated time and according to the norms prescribed for the purpose.

Supervisor

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 ACKNOWLEDGEMENT

I have written this project, "Termination of Agency" under the

supervision of Ms. Sakshi Poonia, Faculty of Contract, University Five Year Law
College, University of Rajasthan, Jaipur. Her valuable suggestions here in not only
helped me immensely in making this work but also in developing an analytical
approach this work.

I found no words to express my sense of gratitude for Director Dr. Aruna

Chaudhary.

I am grateful to librarian and library staff of the college for the support and
cooperation extended by them from time to time.

Rahul Bagari

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 RESEARCH METHODOLOGY

The researcher has adopted doctrinal method research. The researcher has made extensive use of
available resources at the Library of University Five-year Law College, University of Rajasthan,
and also internet resources.

RESEARCH QUESTIONS :-

1. What is Agency?
2. What is Termination of Agency?

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 TABLE OF CONTENT

CERTIFICATE..............................................................................................................................02

DECLARATION...........................................................................................................................03

ACKNOWLEDGEMENT.............................................................................................................04

RESEARCH METHODOLOGY...................................................................................................05

ABSTRACT..................................................................................................................................07

CHAPTER-1
AGENCY..................................................................................................................................08-09

CHAPTER- 2
LIABILITY OF PRINCIPAL AND AGENT BEFORE TERMINATION OF AGENCY......10-11

CHAPTER-3
TERMINATION OF AGENCY..............................................................................................12-13

CHAPTER- 4
RELATED CASES LAW..............................................................................................................14

CONCLUSION..............................................................................................................................15

BIBLIOGRAPHY..........................................................................................................................16

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 ABSTRACT

An agency usually provides a service, like an aid organization or a government bureau. If you're
looking for a job, an employment agency might be able to help. The Latin word agere means "to
do or manage," and it's a fitting ancestor for agency, a word that means an institution that manages
or specializes in something.Termination of agency is when the relationship between principle and
agent comes to an end. An agreed relationship between the principle and the agent by agreement or
law by a third party known as the agency in the contract. The agent deals with third parties on
behalf of the principal.

Section 201 mentions various modes of the termination of agency of an agent. The Section is as
follows: "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."

Various modes of the termination of agency as provided in this Section are as follows:
(i) By revocation of agent's authority.
(ii) By renunciation of the business of agency by the agent.
(iii) By the completion of the business of agency.
(iv) By the death or insanity of either the principal or the agent.
(v) By insolvency of the principal.

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. If a client gives a power of attorney to a counsel, while he is in sound
state of health and understanding but subsequently because of his old age and feeble and weak
mind becomes mentally incapable of comprehending and giving instructions to his counsel, the
power of attorney becomes worthless after the change in the state of health and mental infirmity
of the principal, ie, the authority of the agent to act on behalf of the principal stands revoked.

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 CHAPTER-1
AGENCY

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
fact 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 part
to another, the Court is entitled to conclude that such relationship was in existence at the time, and
for the purpose in question. In terms of the Salary Savings Scheme, significantly the employee for
all transactions was required to contract his employer only.

In view of findings aforementioned, the Corporation, thus, cannot be permitted to take a different
stand s as to make the employee suffer the consequences emanating from the default on the part
of the employer. If for some reasons, the employer is unable to pay the salary to the employees, as
for example, its financial constraints, the employee may be held to have a legitimate expectation
to the effect that his employer would at least comply with its solemn obligations. Such obligations
having been undertaken to be performed by the employer at the behest of the Corporation as its
agent having the implied authority therefor, the Corporation cannot be permitted to take advantage
of its own wrong as also the wrong of its agent. In any event, the employer was obligated to inform
the employee that for some reason, he is not in a position to perform his obligation whereupon the
latter could have paid the premium directly to the appellant.

When one party delegates some authority to another party whereby the latter performs his actions
in a more or less independent fashion, on behalf of the first party, the relationship between them
is called an agency. Agency can be express or implied. Chapter X of the Indian Contract Act, 1872
deals with the laws relating to Agency. It is important to know the law relating to agency because
nearly all business transactions worldwide are carried out through agency. All corporations, big or
small, carry their work out through agency.

Therefore, laws relating to the agency are an important area of Business Law. Relationships
relating to principal and agent involve three main parties: The Principal, the Agent, and a Third
Party.
The Indian Contract Act, 1872 defines an ‘Agent’ in Section 182 as a person employed to do any
act for another or to represent another in dealing with third persons.

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According to Section 182, The person for whom such act is done, or who is so represented, is
called the “principal”. Therefore, the person who has delegated his authority will be the principal.
Illustrations;
A, a businessman, delegates B to buy some goods on his behalf. Here, A is the principal and B is
the agent, and the person from whom the goods are bought is the ‘Third Person’.

MODES OF 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. In
the following situations, the principal is bound by the acts of the agent, ie., in such situations, the
agent has the power to bind his principal:

1. By actual authority being conferred on the agent to act on behalf of the principal. Such
authority may be either Express or Implied.
2. By agent’s authority to act on behalf of the principal in a Situation of Emergency.”
3. By the conduct of the principal, which creates an agency on the basis of the Law of
Estoppel.
4. By ratification of the agent’s act by the principal, even though the same has been done
without the principal’s prior authority.
5. By presumption of agency in Husband-Wife relationship

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 CHAPTER- 2

LIABILITY OF PRINCIPAL AND AGENT BEFORE TERMINATION

Agent’s liability before termination of agency:-

Conducting the principal’s business according to the instructions given by the principal
(section-211):-

1. As per section 211, an agent shall act within the purview of the authority that his
principle authorises him.
2. Furthermore, he would strictly follow the instructions of his principal . However, in the
absence of express instructions from his principal, he would follow the custom prevailing
at the place where he performs his business, in a similar occupation.
3. Run the agency’s business competently and to punish the principal for loss of
competence or incompetence in the case of his own negligence: Section 212 states that he
shall work with due skill and diligence. Furthermore, where the nature of an agent’s
profession requires him to possess a particular skill, then the agent must use the particular
skill for completion of work.
4. It is the duty of the agent to keep correct and impartial accounts and prepare them on a
proper notice. An agent will not make any secret profit and he will disclose any
additional profit made to the principal. Where the principal realizes that the agent is
making a secret profit, he can dismiss the agent without notice, recover the amount of the
profit and also dissuade him from paying his remuneration. He can also cancel a contract
where a third party is also involved in the fraud and recover damages.
5. Rendering the principal with proper and accurate accounts.
6. In contact with the principal and trying to receive his orders, using all due diligence.
7. To pay to the principal, all amounts received in the course of the company and without
the prior permission of the principal from any work performed on the account of the
latter.

Principal’s liability before termination of agency:-

• Duty to compensate agent: An agency relationship may be repaid or be grateful. An
agency’s terms can be put into an agency agreement. If the agency contract does not
indicate the terms of compensation, the principal agent is obliged to provide appropriate
compensation.
Example: Default rules in a relationship with a sales agent dictate that the agent will earn
a reasonable commission when the sale is made or motivated.

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 • Duty to reimburse an agent: The principal should reimburse the agent for the appropriate
amount spent in performing his duties. Proper reimbursement includes travel costs, meals,
accommodation, contingency expenses, etc.
• Generally, a principal must condemn an agent for liability in the performance of his duties.
This usually arises when the principal’s instructions give the agent a third party for liability.
• If an agent is outside the purview of his rights or acts, the principal may exempt him
from indemnity. If the principal later confirms the agent’s actions, he will be obliged to
convict the agent against the liability.

Liability of principle and agent after termination:-

• Duty to compensate agent: An agency relationship may be repaid or be grateful. An
agency’s terms can be put into an agency agreement. If the agency contract does not
indicate the terms of compensation, the principal agent is obliged to provide appropriate
compensation.
• Notice of revocation: The principal must give notice to the agent and the third party with
the reason of termination. And this notice must be served to both the parties.\
• Revocation may be express or implicit: The revocation can be expressed or implicit.
• The principal and agent are free now and can enter any other contract differently.

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 CHAPTER-3
TERMINATION OF AGENCY

When the relationship between principle and agent comes to an end, it’s known as termination
of agency. Section: 201 – 210 deals with termination of agency.

Modes of termination: The provisions relating to the mode of agency are defined under Section
201 of the Indian Contract Act – 1872. Section- 201 which provides termination of agency is not
comprehensive. We can divide termination of agency into two parts:

1. By the act of parties.

2. By the operation of law.

1. By the act of Parties:-

There are following manner in which by the act of parties the agency can be terminated:
Revocation by mutual agreement: The agency of contract can be terminated at any time by mutual
agreement between the principal and the agent.

• Revocation by the principal: Agency can be terminated by the principal by revoking the
agent’s authority. The principle can revoke his agent’s authority when it has not been
exercised by the agent reasonable, notice must be given for such revocation.
For Example- A empowers B to let A’s house. Afterwards A lets it himself. This is an
implied revocation of B’s authority.
• Revocation by the Agent: The Agent also can revoke the agency by serving notice to the
principle. As per section 206 of the Indian Contract Act 1872, the agent must give proper
notice of renunciation / revocation of his principal. Otherwise, he shall be liable to make
good for the loss to the principal for such notice.

2. By Operation of law:-

The following points are included in this:

• By the completion of agency: After completion of agency work, an agency can be

terminated for which agency is created.
Example: Mahesh employed Sachin as his agent to sell his house in China when the house
was sold by Sachin, it automatically terminates the contract of agency between Mahesh
and Sachin.

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• By the end of time: The agency can also be terminated by the end of time. If the agency
is created for a specific period of time, then it expires after the time period is over.
Example: Anandam employs to anjana as a secretary for the period of 3 years at the end of
the 3 years. The contract of agency will come to an end after the specified period.

• Death or insanity of principle or agent: Section 209 of the Indian Contract Act deals
with it. If there is a death of the principle or agent, the business or agency of the firm may
be terminated in this situation.

• Insolvency of principle: To create an agency it is necessary to be competent but, if the

principal becomes insolvent or bankrupt, the agency may be terminated.

• Destruction of subject matter: If this subject of agency is destroyed then the agency is
closed.
For example – any agency is made for sale of airplanes, if the airplane catches fire before
the sale then, this agency can be terminated because airplane are the subject of this contract.

• Principal becomes a foreign enemy: If the principal becomes a foreign enemy, the
contract of agency terminates.
Example: Mr. T is employed in America and Mr Sachin who works as an agent for Mr. T
in China for business, due to war climate between the countries of principal and agent, the
contract of agency gets terminate.

• Winding up of company or firm: A firm or company can be considered as a chief in an

agency contract. If the company or firm is dissolved, then the agency is terminated.

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 CHAPTER- 4

RELATED CASES LAW

1. R. Sayani v. Bright Bros (P) Ltd., AIR 1980 :-

Where an organization is formed for a defined amount for time, the liability for premature
termination will have to be compensated if the termination was not justified. No proper
warning was given for the department’s premature decision. The agent got Rs. 4000 per
month. The court was of the view that there should have been a warning of at least three
months. In contrast, a reward of Rs. 12,000 was allowed.

2. Carter v. White, (1883):-

A principal paid the money to his agent and gave him an agreed exchange bill with the
authority to fill it in the drawer’s name. The principal died before he could finish the bill.
His power to fill in the name of the drawer was not considered terminated.

3. Sukhdev V. Command of the Command, (1998) :-

Through the termination of the name, an agency is automatically terminated. Where gas
pumps were to be regulated by the agency for a specified time, it was assumed that the
agent was obliged to evacuate the premises at the end of the period. There was no extension
provision, nor was there any actual renewal clause.

4. Truman v. Lauder (1840) :-

A was working as an agent of B here. With B’s authority, all parties with whom A has
entered into a contract in that undertaking have the right to hold B accountable until B
informs the world that A’s authority has been taken away and that it makes sense. The
question here was whether the agent intends to maintain the contract his account in a
specific situation. The court rejected the claim that it was improper to ask the principal to
tell the whole world that he had revoked his agent’s power of attorney and that he should
not be expected to contact such a person Will with whom an agent was ready to deal. . And
notify him of termination.

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 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".

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.

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 BIBLIOGRPHY

Websites:-

1. https://lawbhoomi.com
2. https://blog.ipleaders.in
3. https://en.wikipedia.org

Books:-

1. Law of Contract-ll (by Dr. R.K. Bangia)

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