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.

Section 202- Termination of agency where agent has an interest in subject-matter

Where the agent has himself an interest in the property which forms the subjectmatter of the agency, the agency cannot, in the absence of an express contract, be
terminated to the prejudice of such interest.
Illustrations
(a) 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.
(b) 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 this authority, nor is it terminated by
his insanity or death.

Termination of Agency under Contract Act

February 14, 2015 by kudrat Leave a Comment
By Simran, CNLU, Patna
Editors Note: The contract of agency is defined as one where one partythe principal, grants authority to another party- the agent, to act on behalf of and under the cont
rol of the principal to deal with a third party. An agency relationship is fiduciary in nature. An
agency can be created by express or implied appointment, necessity or estoppel. There are
certain duties that the parties owe each other. Since the relationship of agency is one that
is based on trust, there may arise circumstances where this trust no longer subsists and as a
result, the agency may have to be terminated. This paper examines these situations and analyses
the effect of the termination of agency.

Introduction
An agents authority can be terminated at any time. If the trust between the agent and the
principal has broken down, it is not reasonable to allow the principal to remain at risk in any
transactions that the agent might conclude during a period of notice.

Agency can be terminated by following ways:

By Agreement
On the basis that agency relationship is created by agreement between the principal and the
agent, such a relationship can also be brought to an end by mutual agreement between the
parties, either in writing or orally[i] .
Termination by agreement may also occur if the agency relationship is terminated pursuant to the
provisions of the agreement itself. The following situations may arise in this context:
If the agreement provides for the appointment of the agent for a specified period of time, the
agency will come to an end automatically when that period of time expires.
If the agreement provides for the agency to terminate upon the occurrence of a specified event,
the agency will come to an end upon the happening of the specified event.

By the Act of Parties

An agency may be terminated by the acts of the either principal or the agent as illustrated
below:Performance by the agent

If an agent is appointed to accomplish a particular task or for a specific purpose, when the task is
accomplished by the agent or the specific purpose is attained, the agency will terminate.
Revocation by the principal

The authority of an agent may be revoked at any time by the principal. However unilateral
revocation otherwise than in accordance with the provisions of the agency agreement may render
the principal liable to the agent for the breach of agency agreement.
Any word or conduct of the principal inconsistent with the continued exercise of the authority by
the agent may operate as revocation of the agency.
Revocations of the agents power by the principal may not automatically discharge the principal
from liability to a third party who is entitled to rely from liability to a third party who is entitled
to rely from liability to a third party who is entitled to rely from liability to a third party who is
entitled to rely on the apparent authority of the agent on grounds of representation by the
principal of previous course of dealing with the agents before notice of revocation is given to the
third party .Therefore notice of revocation of an agents power should be given to the third party
as soon as possible.

Renunciation by agent

An agent is entitled to renounce his power by refusing to act or by notifying the principal that he
will not act for the principal[ii].
Unilateral termination of the agency by the agent before he has fulfilled the obligations to the
principal under the agency agreement will render the agent liable to the principal for the breach
of the agency agreement such as payment of damages for the loss suffered by the principal.

By Notice
If the agency agreement provides that the agency may be terminated upon either party serving on
the other written notice of a specified duration.
However, if the agency agreement does not contain any termination provision, the general rule is
that reasonable notice has to be given to the other party to terminate the agency.

By Operation Of Law:An agency may terminate by the operation of law upon the occurrence of particular events:Where the party concerned is an individual:

By death

By insanity

By bankruptcy

Where the party concerned is a limited company

Winding up

Receivership

Frustration of the contract of agency.

Agency
Section 182 of the Indian contracts act 1872, defines Agent & Principal: an agent is a person
employed to do any act for another, or to represent another in dealings with the third parties. The
person for whom such act is done, or who is represented, is called the principal. Agency is the
relationship that subsists between the principal and the agent, who has been authorized to act for
him or represent him in dealing with others. Thus, in an agency, there is in effect two contracts
i.e.

a) Made between the principal and the agent from which the agent derives his authority to act for
and on behalf of the principal; and
b) Made between the principal and the third party through the work of the agent.
Any person, who is of the age of majority according to the law to which he is subject, and who is
of sound mind, can employ an Agent1. As between Principal and third person a person may
become an Agent, so as to be responsible to his Principal according to the provisions contained
in the Act. No consideration is necessary to create an agency[iii]. Several types of commercial
agents have been recognized under Indian law, which includes inter alia brokers, auctioneers, del
credere agents, persons entrusted with money for obtaining sales and insurance agents.

Creation of Agency
By express appointment by the principal

Generally an authority is conferred by the Principal to the Agent. If the agent exceeds this
authority, then the principal will not be bound and the agent will be personally liable to the third
party for breach of warranty of authority.
However the common law may extend the scope of the agents authority beyond this, to protect
an innocent third party.
The principal will then be bound to the third party, but the principal can sue the agent for
overstepping his actual authority, if its a breach of the agency contract.
By implied appointment by the principal

The law can infer the creation of an agency by implication when a person by his words or
conduct acts as if he has such authority and the principal acknowledges that he was entitled to act
accordingly. Implied authority, is not specifically mentioned by contract but assumed or implied
by the nature of the relationship, are presumed to be given to an agent if that authority is
necessary to perform the duties or responsibilities otherwise assigned to the agent or
representative.
Apparent / Ostensible authority

While actual authority arises from an agreement, apparent authority is that which the law regards
the agent as having, although principal may not have consented to the agent having such
authority. Apparent authority can happen in two situations:
Where principal by words/ conduct, makes a third party to believe that agent has authority to
make contract for the principal

Where the agent previously had authority to act, but that authority was terminated by the
principal and the principal did not inform third parties that he has terminated it.
By necessity

The origins of the doctrine of necessitous intervention by someone who is in a legal relationship
with the defendant lie in the principle of agency of necessity, where an agent went beyond his or
her authority by intervening on behalf of the principal in an emergency. Because of the
circumstances of necessity, particularly the impracticability of the agent communicating with the
principal, the courts were prepared to treat the agent as though he or she had the necessary
authority to do what was reasonably necessary to save the principals property[iv]. If an agency
of necessity was established, the agent would be reimbursed for the expense incurred in rescuing
the principals property.
An agency of necessity may be created if the following three conditions are met:
a) It is impossible for the agent to get the principals instruction.
b) The agents action is necessary, in the circumstances, in order to prevent loss to the principal
to prevent them from rotting.
c) The agent must have acted in good faith.
In an urgent situation, an agent has authority to act in the best interest for the purpose of
protecting his principal from losses.
By Estoppel

A person cannot be bound by a contract made on his behalf without his authority. However, if he
by his words and conduct allows a third party to believe that that particular person is his agent
even when he is not, and the third party relies on it to the detriment of the third party, he
(principal) will be estopped or precluded from denying the existence of that persons authority to
act on his behalf[v].
Ratification by the Principal

Agency by ratification can arise in any one of the following situations:

An agent who was duly appointed has exceeded his authority; or
A person who has no authority to act acted as if he has the authority.
When one of the above said situations arise, the principal can either reject the contract or accept
the contract so made.

When the principal accepts and confirms such a contract, the acceptance is called ratification.
Ratification may be expressed or implied.
The effect of ratification is to render the contract as binding on the principal as if the agent had
been properly authorized before hand.

Duties of an Agent to his Principal

Duty of an agent is list down from section 190 to section 218 of the Indian Contract Act 1872.

To obey principals instruction

To exercise care and diligence in carrying out his work and use such skill as
he possesses

To render proper accounts when required

To pay to his principal all sum received on his behalf

To communicate with the principal

Not to let his own interest conflict with his duty

Not to make an secret profit out of the performance of his duty

Not to disclose confidential information or documents

Not to delegate his authority

Duties of Principal to His Agent

The duties of a principal to his agent are provided in sections 175 to 178. The main duties are:

To pay the agent the commission or other agreed remuneration unless the
agency relationship is gratuitous.

Not to willfully prevent or hinder the agent from earning his commission.

To indemnify and reimburse the agent for acts done in the exercise of his
duties.

Termination of Agency
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.
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[vi]. 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. The agents duty to act on behalf of the principal comes to
an end on the termination of agency. The timeframe for termination of an agency can be
stipulated by a particular statute or instrument. In such a case, if the instrument specifies in plain
and unambiguous terms that an agency will terminate without action on the part of the principal
or agent upon the expiration of the time specified in the instrument, the agency will in fact,
terminate[vii]. If, after the expiration of the time so stipulated in the contract, the parties continue
their relationship as principal and agent, a rebuttable presumption is raised that their relations are
governed by the original contract and that the contract is renewed for a similar period. For
instance, if the parties entered into a contract for one year and continued to act under the
contractual terms after one year, the court will presume that the parties in fact intended to keep
the contract alive for another year.
On the other hand, if the parties did not fix any appropriate time for the termination of contract,
the contract is deemed to be terminated after a reasonable time. What constitutes a reasonable
time during which the authority continues is determined by the nature of the act specifically
authorized, the formality of the authorization, the likelihood of changes in the purposes of the
principal, and other factors. Moreover, the burden of proving the termination or revocation of an
agency rests on the party asserting it.
Parol evidence cannot be admitted to add another term to an agreement even if the writing
contains nothing relating to the particular provision to which the parol evidence is directed.
Thus, courts will not admit parol evidence while determining the duration of an agency contract
where the written contract is viewed as integrated, or unambiguous, or both. An agency
continuing for a reasonable time can be terminated by one party only after giving sufficient
notice to the other party.
Different ways by which an agency can be terminated :

An agency created for a specific purpose as well as an agency created by a

power of attorney is terminated once the particular purpose for which it was
created was accomplished. After the termination of the agency, the agent is
free of any fiduciary duty to the principal arising from the agency
relationship.

The parties can terminate the agency by mutual agreement. An agency

relationship requires the mutual assent of the parties and both the parties
have power to withdraw their assent. An agency may not be terminated by
the act of one of the parties and should be done mutually. The mutual
abandonment of an agency is a question of fact, since it is a matter of
intention of both the parties. The court will ascertain such intent from the
surrounding facts and circumstances of the transaction as well as implied
from the conduct of the parties[viii].

An agency contract may be cancelled on the basis of an express stipulation in

the contract. In such a case, the parties will have a right of cancellation at the
will of either party or upon the happening of a contingency or the
nonperformance of some expressed condition. The principal cannot cancel
such an agreement at will so long as the agent fulfills his/her part of the
agreement. However, the principal can cancel the agency contract for any
justifiable cause.

An agency may be revoked at the will of the principal when an agency is not
coupled with an interest, and no third partys rights are involved. The party
terminating the agency must show good cause. Thus, when A enters into a
contract whereby B is to provide A for a stated period of time with goods or
services, which both parties realize are for use in a particular enterprise
owned by A, in the absence of a specific clause so providing, A cannot escape
his obligations under that contract by voluntarily selling his interest in the
enterprise before the expiration of the expressed contract term. Therefore, if
the right to cancel an agency contract is dependent upon some contingency,
the cancellation must be justified by establishing the happening of such
contingency.
An agency cannot be terminated at will during certain
specific instances. For example, in the matter of distributorship or sales
agency contracts of indefinite duration, an at-will termination is not
feasible[ix]. In such a case, the distributor might have made substantial
investment in establishing or furthering the distributorship. Hence, the
agreement may be terminated only after a reasonable time has lapsed and
reasonable notice of termination is given. An agency contract to be
performed to the principals satisfaction can generally be canceled at will by
the principal. Similarly, a power of attorney constituting a mere agency may
be revoked at any time, with or without cause.

A principal may unilaterally cancel an agency without incurring liability for

breach of contract under the following instances: misconduct or habitual
intoxication of the agent which interferes with his/her employment, the
refusal of the agent to obey reasonable instructions or to permit the principal
to make a proper audit of his/her accounts, serious neglect or breach of duty
by the agent, dishonesty or untrustworthiness of the agent, the agents
failure to pay an indebtedness owing to the principal, disloyalty of the agent
like using the agency to make secret profits.

Ordinarily, an agent may renounce the agency relationship by expressly

notifying the principal, either orally or in writing. An agents cessation of all
relations with the principal, and abandonment by the agent may be treated

as a renunciation. However, mere violation of instructions by the agent will

not amount to renunciation. Although agency can be terminated at will, law
stipulates that notice must be given to the party affected by termination.
However, express notice to the agent that the agency has been revoked, or
to the principal that the agency is renounced, is not always necessary if the
affected party actually knows, or has reason to know the facts resulting in
such revocation or renunciation. The principal shall provide sufficient notice
to third parties as to the revocation of agents authority. Otherwise, the acts
of an agent after his/ her authority has been revoked may bind a principal as
against third persons who rely upon the agencys continued existence. This
may often happen to transactions initiated by the agent before the revocation
of authority, and the rule is applied in favor of persons who have continued to
deal with insurance agents, purchasing agents, and the like.

There is no need to provide any formal written notice to third persons of the ending of an agency
relationship. Actual notice of termination is sufficient in the case of third parties and such notice
may be shown by a written or oral communication from the principal or the agent, or it may be
inferred from the circumstances. For instance, a third party is deemed to have actual notice if
he/she has knowledge of the fact that the principal has appointed another agent for the same
purpose. The character of the notice also differs with respect to third parties. Thus, actual notice
must be brought home to former customers who have dealt with the agency more directly, while
notice by publication will be sufficient as to other persons. In addition, an agency may be
terminated by operation of law[x]. The death of the principal operates as an immediate and
absolute revocation of the agents authority, unless the agency is one coupled with an interest.
The rule is the same even if the agency is created with more than one principal. Where the power
or authority is created by two or more principals jointly and one of them dies, the agency will be
terminated unless it is coupled with an interest. However, an agency may be made irrevocable by
statute, notwithstanding the death of the principal.

Regarding the termination of agency upon the death of the principal, two
views are prevailing. According to one view, unless the agency is one coupled
with an interest, it will terminate on the death of the principal,
notwithstanding the fact that the agent and third person are ignorant of the
fact. Another view is that if the third person dealing with the agent acts in
good faith and in ignorance of the principals death, the revocation of the
agency on the death of the principal takes effect only from the time that the
agent receives notice of such death. In such a case, the principals estate
may be bound where the act to be done is not required to be done in the
name of the principal. Similarly, death of the agent will revoke an agency
not coupled with an interest and this is the rule when there are two or more
agents. However, in the case where a sub agent is appointed by the agent,
the authority of a subagent is terminated by the death of the agent, unless
the agent appointed the subagent at the principals request[xi]. In that event,
the subagent derives his/her authority form the principal and not from the
agent.

The loss of capacity of a party resulting from temporary or permanent mental

incompetency may result in the termination or suspension of the agency
relationship. Thus, the termination of the agents authority due to the loss of
capacity of the principal may not affect the rights of third persons if such
third persons do not have notice of such fact. Also, if the agents authority is
coupled with an interest, it is not suspended by the principals insanity.
Similarly, bankruptcy of the principal is a valid reason for the termination of
agency and the agent is divested of any authority to deal with any assets or
rights of property of which the principal was divested by reason of the
bankruptcy, irrespective of whether the agent receives notice of the
bankruptcy. A power of attorney may be terminated by the bankruptcy of the
principal. The mere insolvency of the principal will not automatically
terminate agents authority.

A change in value of the subject matter or a change in business conditions

may terminate or suspend the agents authority if the agent should
reasonably infer that the principal would not consent if aware of such facts.
Similarly, a change in legal identity of, or merger by, the principal is a valid
ground for termination of an agency contract. The loss or destruction of the
subject matter of the agency or the termination of the principals interest is
yet another ground for terminating the agents authority. The agents
authority ceases when the agent has notice of the fact. However, destruction
of subject matter will not always result in termination of agency, especially
when the subject matter can be replaced without substantial detriment to
either party[xii].

In addition, a change of law making the required act illegal may terminate an agency contract. If
the authority or power of an agent is coupled with an interest, it is not revocable by the act,
condition, death, or mental incapacity of the principal before the expiration of the interest, unless
there is some agreement to the contrary. A power is coupled with an interest where the agent
receives title to all or a part of the subject matter of the agency. In order to support a claim of
power coupled with an interest, either legal title or equitable title is sufficient. A power coupled
with an interest will survive to the personal representative of the agent upon the agents death.

R. Sayani v Bright Bros (P) Ltd, AIR1980 Mad 162

Where an agency has been created for a fixed period, compensation would have to be paid for its
premature termination, if the termination is without sufficient cause. Reasonable notice for
premature determination of agency was not given. The agent was earning Rs. 4000 per month.
The court was of the view that at least three months notice should have been given. A
compensation of Rs. 12,000 was accordingly allowed.

Carter v White, (1883) 2 Ch D 666: (1881-85) All ER Rep 921.

A principal owed a sum of money to his agent and gave him an accepted bill of exchange with an
authority to fill in the drawers name. The principal died before the agent could complete the bill.

His authority to fill in the drawers name was held not to be terminated.

Sukhdev v Commr of Endowments, (1998) 1 BC 403 (AP)

An agency comes to an automatic end on the expiry of its term. Where the agency was to run a
petrol pump for a specific period, it was held that the agent was bound to vacate the premises on
expiry of the period. There was no renewal clause , nor in fact there was any renewal.

Trueman v Loder (1840) 11 Ad & El 589

Here A traded as Bs agent. With the authority of B, 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 As authority is revoked and it makes no difference if in a particular case the agent intended
to keep the contract on his own account[xiii]. The court repelled the contention that it was very
unreasonable to expect that the principal should inform the whole world that he has cancelled the
power of attorney given to his agent and that he cannot be expected to approach everybody with
whom the agent was likely to enter into a contract and inform him of the cancellation.

Effect of Termination of Agents Authority

Sometimes former agents continue to act on their ex-principals behalf even though the agency
has ended. Once an agency terminates by any of the means just described, the agents actual
authority(expressed and implied) ends as well. Nonetheless, such ex-agents may
retain apparent authority to bind their former principals.
Third parties who are unaware of the termination may reasonably believe that an ex-agent still
has authority. To protect third parties who rely on such a reasonable appearance of authority, an
agents apparent authority often persists after termination. Thus, a former agent may be able to
bind the principal under his apparent authority even though the agency has ended.

Notice to Third Parties

Apparent authority ends only when the third party receives appropriate notice of the termination,
that is, when it is no longer reasonable for a third party to believe that the agent has actual
authority. Some bases for termination by operation of law (such as changed circumstances) may
provide such notice.
Under the Restatement (Third) of Agency, an agents apparent authority may continue even after
the principals death or loss of capacity. An agent may act with apparent authority following the
principals death or loss of capacity because the basis of apparent authority is a principals
manifestation to third parties, coupled with a third partys reasonable belief that the agent acts
with actual authority[xiv]. When third parties do not have notice that the principal has died or
lost capacity, they may reasonably believe the agent to be authorized. The rule that the principals

death does not automatically terminate apparent authority is consistent with the interest of
protecting third parties who act without knowledge of the principals death or loss of capacity.
To protect themselves against unwanted liability, however, prudent principals will want to notify
third parties themselves. The required type of notification varies with the third party in question.
For third parties who have previously dealt with the agent or who have begun to deal with the
agent,actual notification is necessary. This can be accomplished by(1) a direct personal statement to the third party; or
(2) a writing delivered to the third party personally, to his place of business, or to some other
place reasonably believed to be appropriate.
For all other parties,constructive notification Usually, these other parties are aware of the agency
but did no business with the agent. Constructive notification normally can be accomplished by
advertising the agencys termination in a newspaper of general circulation in the place where the
agency business regularly was carried on. If no suitable publication exists, notification by other
means reasonably likely to inform third partiesfor example, posting a notice in public places or
at a websitemay be enough.

Claim for damages

Apart from revocation of agency, the principal may also claim damages/losses sustained due to
the acts/non-acts of the agent by referring the matter to arbitration as stipulated in the contract of
agency. It also is well settled that the party who has breached the contract and has by his conduct
exhibited the traits of having abandoned or renounced the obligations under the contract will not
be entitled to claim damages from the other side[xv]. In this case, the sole selling agent, having
exhibited uncooperative attitude and conduct and by virtually sabotaging the business of the
principal, notwithstanding his clear obligations both under the agreement and the Contract Act,
would have no case to go before any court and seek damages or compensation on the contrary,
the principal would be well justified in claiming damages and expenses/costs against the sole
selling agent. In view of the doctrine of necessity, the dispensing with prior to six months
notice would be justified and reasonable otherwise, to wait for six months and play into the
hands of an untrustworthy agent would only witness the complete obliteration of the principals
business.

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[xvi]. 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.
Edited by Kudrat Agrawal
[i] www.isca.in/IJSS/Archive/v2/i11/10.ISCA-IRJSS-2013-108.pdf.
[ii] http://www.studymode.com/essays/Termination-Of-Agency-1469514.html.
[iii]https://www.inkling.com/read/business-law-jane-mallor-15th/chapter-35/termination-of-anagency.
[iv] www.isca.in/IJSS/Archive/v2/i11/10.ISCA-IRJSS-2013-108.pdf.
[v] http://www.studymode.com/essays/Termination-Of-Agency-1469514.html.
[vi] http://www.studymode.com/essays/Termination-Of-Agency-1469514.html.
[vii] https://www.scribd.com/doc/48004714/The-Formation-of-Agency-and-Termination.
[viii] http://agency.uslegal.com/duration-and-termination-of-agency/.
[ix]http://www.lawteacher.net/commercial-law/essays/the-law-of-agency-commercial-lawessay.php.
[x] http://www.studymode.com/essays/Termination-Of-Agency-1469514.html.

[xi] https://www.scribd.com/doc/48004714/The-Formation-of-Agency-and-Termination.
[xii] http://agency.uslegal.com/duration-and-termination-of-agency/.
[xiii] www.isca.in/IJSS/Archive/v2/i11/10.ISCA-IRJSS-2013-108.pdf.
[xiv] http://www.studymode.com/essays/Termination-Of-Agency-1469514.html.
[xv] http://www.studymode.com/essays/Termination-Of-Agency-1469514.html.
[xvi] www.isca.in/IJSS/Archive/v2/i11/10.ISCA-IRJSS-2013-108.pdf.