Chapter-15

Agency

SECTION NUMBER SECTION NAME

182 Meaning of Agent and Principal
183 Principal should be competent to contract
184 Agent may not be competent to contract
185 No consideration is necessary to create an agency
186 Agent’s authority may be expressed or implied
187,188&189 Extent of agent authority
190 Delegation of authority
191,192&193 Sub Agent
196-200 Agency by ratification
201 Termination of agency
202 Irrevocable agency
203 Termination of agency
204 Irrevocable agency
211 Duty to follow principal’s instruction and the custom
212 Duty to exercise reasonable diligence and skill
213 Duty to maintain business secrets of principal
214 Duty to communicate
215 Duty not to deal on his own account
216 Duty not to make secret profit
217&218 Duty to remit principal’s money
219&220 Right to receive remuneration
221 Right of lien
222 Right of indemnity
223 Right of indemnity for the acts done in good faith
225 Right of compensation
227&228 Principal’s liability for acts of agents
231&233 Undisclosed principal
235&236 Pretended agent

15.1 Meaning of Agent Principal and Agency Section 182

Meaning of agent An agent is a person employed –
Section 182  to do any act for another. or
 to represent another in dealing with third parties.
Meaning of The person for whom -:
principal Section  such act is done, or
182  who is so represented is called the principal.
Meaning of  The term agency denotes a relationship between two persons wherein one is
Agency called a ‘principal’ and the other an ‘agent’.

15.2 Some Features of a Contract of Agency Section 183 to 185

The principal  According to Section 183 “any person who is of the age of majority according
should be to the law to which he is subject and who is of sound mind, may employ an
competent to agent”.
contract (Section  From the above Section, it can be concluded that persons who are competent
183) to contract can only be principals.
Agency
The agent may not  According to Section 184 ”As between the principal & a third person, any
be competent to person may become an agent, but no person who is not of the age of majority
contract (Section and of sound mind can become an agent, so as to be responsible to his
184) principal according to the provisions in that behalf herein contained”.
 In simple words, any person may become an agent even a minor or a person
of unsound mind can become an agent. However, if the agent is a minor or a
person of unsound mind he is not liable to the principal.
No consideration is  Section 185 provides that no consideration is necessary to create an agency.
necessary to create
an agency (Section
185)
PAST ATTEMPT Q1. A minor cannot be appointed as an agent [CA PCC NOV. 2007]
QUESTIONS Q2. No consideration is necessary to create an Agency. [CA IPCC NOV.
2010]
Q3. Agency cannot be created without consideration. [CA Inter.(IPC) NOV.
2013]

15.3 General Rules of Agency

Whatever a person can do personally he can do through an agent, except for acts involving
personal skill and qualifications
He who does through another does by himself -:
 In other words the acts of the agent are for all legal purposes the acts of the principal.
 Section 226 provides to the some effect “contracts entered into through an agent and obligations
arising from 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.
The main evidence to show the presence of agency between two persons would be the
representative position of the person working for the other
Q1. R is the wife of P. She purchased some sarees on Credit from Q. Q demanded the amount from
P. P Refused. Q filed a suit against P for the said amount. Decide in the light of provisions of the
Indian Contract Act, 1872, whether Q would succeed? [CA PE II MAY 2008]
Q2. W is the wife of H, who is Lunatic, purchases a diamond set of Rs.10 lacs from Beauty Jeweller
on credit. Referring to the provisions of the Indian Contract Act,1872, decide whether the Beauty
Jeweller is entitled to claim the above amount from the property of H. [CA PE II JUNE 2009]
Q3. K is the wife of A. She purchased a saree on credit from B.B demanded the amount from A. A
refused to make the payment. B filed a suit against A for the same amount. Decide in the light of
provisions of the Indian Contract Act, 1872 whether B would succeed. [CA Inter.(IPC) MAY
2013]

15.4 Modes of Creation of Agency Section 186,187,196,200,237

An agency relationship can emerge between two persons in several ways as explained below.
 Agency by express agreement or express agency.
 Agency implied from circumstances or implied agency.
 Agency by operation of law.
 Agency by ratification.
Agency by Express  Agency relationship may be created by an express agreement between the
Agreement Section agent & the principal.
 Under, express agreement agent may be appointed either by words of mouth
or by an agreement in writing.
Agency implied from circumstances
Agency by estoppel  An agency may emerge by the application of the doctrine of estoppel.
Agency
Section 237  This doctrine in the present context would mean that when a person has led
another person to believe by his words or conduct that a certain person is
his agent, then he is precluded or stopped from denying the truth of this fact
even if it is wrong and he is bound by the acts of the agent.
Agency by holding  To hold out means to present or to show up.
out  Agency by holding out means creation of agency by presenting a person as
agent without actual words to that effect.
Agency by  In certain circumstances the law provides an authority on one person to act
necessity as agent for another without any regard to the consent of the principal. Such
an agency is called an agency of necessity.
 Thus, the conditions which enable a person to act as an agent of necessity of
another are as follows:
 There should be a real necessity for acting on behalf of the principal.
 If should be impossible to communicate with the principal within the time
available.
 The agent should act bonafide in the interests of the principal.
Agency by  Sometimes an agency arises by operation of law.
operation of law
Agency by Ratification - : Sec 196 -200
Meaning of agency  Ratification means the subsequent adoption and acceptance of an act
by ratification originally done without instruction or authority.
 Thus, where a principal affirms or adopts the unauthorized act of his agent,
he is said to have ratified that act and there comes into existence an agency
by ratification retrospectively.
Ratification Ratification has got retrospective effect. By ratifying the unauthorized act of the
tantamount to prior agent the principal becomes bound by the act as if it had been originally done
authority by his authority. Thus ratification tantamounts to prior authority. It relates back
to the original making of the contract.
Essentials of a valid ratification:- A valid ratification must fulfill the following conditions
Prinicipal must be  The agent must expressly contract as an agent for a principal in the
indentifiable knowledge of third parties.
 The principal must be named or must be identifiable and it is not sufficient to
indicate simply that he is acting as agent of some one.
Existence of  Ratification shall be valid only if the principal doing it was in existence at the
principal time when the act was done and the date of ratification.
Competence of  The principal must have contractual capacity both at the time of the contract
principal and at the time of ratification.
Full knowledge of  Ratification should be based on knowledge of all relevant facts.If the agent
Facts conceals from the principal some vital information while seeking ratification,
such ratification by the principal shall not bind him.
Ratification must be Ratification must be done within a reasonable time, of the act to be ratified.
within a reasonable
time
The act to be The act to be ratified must be a lawful one.
ratified must be
lawful
The whole  There can be ratification of an act in total.
transaction can be  The principal cannot ratify a part of the transaction which is beneficial to him
ratified and reject the rest.
Ratification must Ratification cannot be effective when its effect is to subject a third person to
not injure a third damages or terminate any right or interest of a third person.
person Section 200
Agency
Ratification can be The acts which the principal is incapable of doing cannot be ratified.
of the acts which
the principal had
the power to do
PAST ATTEMPT Q1.What do you understand by "Agency by Ratification"? What is the effect of
QUESTIONS ratification? Point out any four elements of a valid ratification. [CA PE II
NOV. 2003]
Sol.
Q2.“The relationship of principal and agent (i.e. Agency) may be constituted by
subsequent ratification by the principal.” Examine the validity of the
statement and state the requisites of a valid ratification in the light of the
provisions of the Indian Contract Act, 1872. [CA PE II NOV. 2006]
Sol.
Q3.R of New Delhi sends his agent M to purchase certain goods from Global
Enterprise, Mumbai on credit for him. Later on R pays the amount for the
goods purchased. On another occasion, he again sends M to purchase
goods but this time pays sufficient cash to M for the purpose. M, However
again purchases the goods from Global Enterprises but on credit and soon
thereafter he dies. Global Enterprise files a suit against R for recovery of
the said amount. Decide whether Global Enterprise would be given any
relief by the Court under the provisions of the Indian Contract act, 1872.
[CA PE II JUNE 2009]
Sol.
Q4.An agreement entered into with a minor may be ratified on his attaining
majority. [CA PCC JUNE 2009]
Sol.
Q5.State with reasons whether there can be an agency by ratification in the
following cases:
(i) M, without authority, buys goods for N, afterwards N sells them to
X on his own account.
(ii) X buys 20 bags of rice for himself and 20 bags for his friend Y. X
informs Y of his act. The trader delivers the bags at Y’s house. Y
consumes the rice.
(iii) X, without Y’s authority, lends Y’s money to Z. Afterwards; Y
accepts interest on the money from Z.
(iv) A newly formed compnay adopts an act done i its name before its
incorporation.
Q6. X holds a lease from Y, terminable on three months notice. Z, an
unauthorized person, gives a notice of termination to X. Subsequently, Y
ratifies the notice given by Z. [CA PE II NOV. 2009]
Q7. Ratification of agency is valid even if knowledge of the principal is
materially defective. [CA IPCC MAY 2010]
Q8. A without B’s authority let outs B’s flat to C. Afterwards B accepts rent of
the flat from C. It is an agency by :
1. Holding out
2. Estoppel
3. Ratification
4. Necessity [CA IPCC MAY 2010]
Q9.An agreement with a minor may be ratified on his attaining majority. [CA
IPCC MAY 2011]

Q10. A minor on his attaining majority can validate any agreement which
was entered into when he was minor and which was void. [CA Inter.(IPC)
MAY 2014]
Agency

15.5 Extent of Agent’s Authority Section 187,189

 The authority of an agent means his capacity to bind the principal to third parties. The agent can bind
the principal only if he acts within the scope of his authority.
 An agent’s authority may be classified as actual or real, ostensible or apparent and authority in
emergency.
Actual Authority or  This is the authority that the principal has actually delegated to the agent.
Real Authority This will include the task expressly or impliedly entrusted to the agent.
 The authority is said to be express when it is given by words spoken or
written.
 The authority is said to be implied when it is inferred from the circumstances
of the case or the ordinary course of dealings (Section 187).
Ostensible Or  Ostensible authority means an authority which the third parties dealing
Apparent Authority with the agent can presume to be with the agent in relation to a particular
business ordinarily.
 An agent can also bind the principal to third parties by acts done within
his apparent authority, provided the third party acts bonafide.
Authority in An agent has authority in an emergency; to do all such acts for the purpose of
Emergency Section protecting his principal from loss as would be done by a person of ordinary
189 prudence in his own case, under similar circumstances.

15.6 Kinds of Agent

General Agent  A general agent is one who is employed to do all acts connected with a
particular business or employment, e.g. a manager of a firm.
Universal Agent  A universal agent is said to be one whose authority is unlimited i.e. who is
authorized to do all the acts which the principal can lawfully do and can
delegate.
Special Agent  A special agent is one who is employed to do some particular act or
represent his principal in some particular transaction e.g. an agent employed
to sell a scooter.
Mercantile Agent  A mercantile agent is one who has authority either to sell goods or to buy
goods or to raise money on the security of goods.
 The various Kinds of mercantile agents are as follows.
a) Factor - A factor is a mercantile agent to whom goods are given for sale.
He sells the goods in his own name upon such terms as he thinks fit. He
may pledge the goods as well.
b) Commission agent – A commission agent is a mercantile agent who
buys or sells goods for his principal on the best possible terms in his own
name & who receives commission for his labours. He may have
possession of goods or not.
c) Del credere agent – He is one who in consideration of an extra
commission, guarantees his principal that the third persons with whom
he enters into contracts on behalf of the principal shall perform their
financial obligations, that is ,if the buyer does not pay, he will pay. Thus,
he occupies the position of a surety as will as of an agent.
d) Broker – He is one who is employed to make contracts for the purchase
and sale of goods. He is not entrusted with the possession of goods. He
simply act as a connecting link and brings the two parties together to
bargain and if the transaction materializes he becomes entitled to his
commission called brokerage. He makes contract in the name of his
principal.
Non mercantile A non mercantile agent means the agent who does not deal in mercantile
Agency
agent transaction.
Sub – Agent -  Subagent is a person employed by and acting under the control of the
Section 191 original agent in the business of the agency. Thus a person employed by an
agent is called a subagent.
Substituted Agent -  An agent may be entrusted by the principal with the task of finding &
Section 194 appointing another agent for the principal.
 The agent appointed in this way may be in addition to the existing agent or
may replace him. Such an agent has been called substituted agent.

15.7 Delegation of Authority Section 190

Meaning of delegation of authority
Delegation of authority means appointment of a sub agent by the agent.
Can an agent i. General Rule
appoint a sub –  an agent cannot appoint a subagent by delegation to him the authority that
agent so as to was given to him by the principal.
delegate his  This rule is based on a well known maxim of law.” Delegatus non protest
authority delegare”.
ii. Exception -:
 However there are certain exceptions to this rule wherein the delegation of
authority shall be held to be proper.
 Principal’s consent – The principal may expressly permit the agent to
appoint a sub – agent.
 Trade custom – The appointment of sub – agent may be proper if
permitted by the custom in the concerned trade.
 Nature of works – If the nature of works entrusted to agent is such that
he has no option but to appoint a sub – agent, then he is permitted to
do so.
 Routine acts – The agent may not be allowed to appoint a sub – agent
where his professional skill is relied upon by the principal. But to do
some routine and clerical act ,he may appoint a sub agent

15.8 Sub Agent Section 191, 192, 193

Meaning of sub A subagent is a person
agent  employed by; and
 Acting under the control of the original agent in the business of the agency.
Consequences of When the appointment is proper –Section 192 provides following
appointing a sub- consequences in such a case:
agent Section 192 &  Principal is liable to third parties for the acts of sub – agent since the latter’s
193 acts becomes the acts of his own principal i.e. the agent and the agents act
are the acts of the principal.
 The agent is responsible to the principal for the acts of sub-agent. So, if the
principal has to make any recoveries from the sub – agent, he can sue only
the agent and not the sub – agent because there is no privity of contract
between the principal & the sub-agent.
 The sub-agent is directly liable not to the principal for his negligence or
breach of duty but to has own principal i.e. the agent.
 The sub agent cannot hold the principal liable for any claims such as his
commission. He can sue his own principal, i.e., the agent only.
When the appointment is improper – Section 193 provides for following
consequences when the appointment of sub-agent is improper.
 The principal is not liable to third parties for sub-agent’s act who does not
represent him.
Agency
 The agent is liable to the third parties and also to the principal for acts of the
sub-agent.
 The sub-agent is not liable to the principal at all, even for his fraud or willful
wrong. He is liable only to the agent.

15.9 Relation of Principal & Agent Section 211,225

I. Duties of Agent – Sec 211-218
Every agent has the following duties towards his principal.
To follow principal’s  An agent is bound to conduct the business of his principal according to the
instructions and the direction given by the principal or in the absence of any such directions
customs according to the custom which prevails in doing business of same kind at the
place where the agent conducts such business.

To exercise  An agent is bound to conduct the business of the agency with as much skill
reasonable as is generally possessed by person engaged in similar business unless the
diligence and skill principal has notice of his want of skill.
To maintain  An agent must maintain secrecy of any information relating to business of the
business secrets of principal that is in his possession. This duty can particularly arise in case of
principal bankers acting for their customers.
To maintain and  The agent has to prepare true accounts of his transaction made for the
render accounts principal and render them to him.
 An agent is bound to render proper accounts to his principal on demand
To communicate It is the duty of an agent in case of difficulty or an extra ordinary situation to
use all reasonable diligence in communicating with his principal and in seeking
to obtain his instructions
Not to deal on his  Agency is a fiduciary relationship. The agent must always maintain good
own account faith for the principal. This give rise to several expectations from the agent.
One such is that he must not deal on his own account in the business of
agency.
 This means that he must not deal with the principal on account of himself i.e.
make himself a third party in relation to the principal without informing him of
all relevant facts & seeking his consent.
 If he violates this duty the principal may repudiate the transaction made by
the agent if either any material fact has been dishonestly concealed from
him by the agent or the dealings of the agent have been disadvantageous to
him (Section 215).
Not to make Secret  Another expectation from an agent is that he should not use the agency
profits works to acquire such additional gains for himself which the principal has not
sanctioned expressly or impliedly.
To remit principal’s An agent is required to remit to the principal all sums received on principal’s
money account after deducting his own lawful claims due on the principal for
remuneration
Not to delegate Since agency is a personal relationship between principal & agent, the agent
authority should not delegate this authority to another person without permission of
principal or other appropriated circumstances.
II. Rights of agent – Sec 217-225
An agent can exercises the following rights against the principal.

Right to receive  An agent has the right to receive remuneration.

rumenration –  If the rumenration is not fixed, then such rumenration as is usual &
Section 219 & 220 customary in such business.
Right of Retainer – The agent has the right to retain principal’s money received by him until his
Agency
Section 217 own claims upon the principal for rumenration, advances or expenses relating
to agency work are not paid.
Right of lien –  The agent has lien over the principal’s property in his hands. This right will
Section 221 entitle agent to retain goods, papers or any other property received from the
principal so long as the agents dues are not paid by the principal.
 This is a particular lien available to the agent which means that only such
property can be retained in relation to which claim is due.
Right of indemnity An agent is entitled to be indemnified by the principal for any loss caused to
Section 222. him by his lawful acts done in exercise of authority conferred upon him.
Right to The principal must make compensation to his agent in respect of injury caused
compensation to such agent by principal’s negligence or want of skill.
Section 225
Right of stoppage of An agent has a right to stop the goods in transit to the principal if -:
goods in transit  He has bought goods either from his money or by incurring a personal liability
for the price; and
 The principal has become insolvent.
PAST ATTEMPT Q1. Mr. Ahuja of Delhi engaged Mr. Singh as his agent to buy a house in
QUESTIONS West Extension area. Mr. Singh bought a house for Rs. 20 lakhs in the
name of a nominee and then purchased it himself for Rs. 24 lakhs. He then
sold the same house to Mr. Ahuja for Rs. 26 lakhs. Mr. Ahuja later comes
to know the mischief of Mr. Singh and tries to recover the excess amount
paid to Mr. Singh. Is he entitled to recover any amount from Mr. Singh? If
so, how much? Explain. [CA PE II NOV. 2005]
Q2.J, the owner of a Fiat car wants to sell his car. For this purpose he hands
over the car to P, a mercantile agent for sale at a price not less than Rs.
50,000. The agent sells the car for Rs. 40,000 to A, who buys the car in
good faith and without notice of any fraud. P misappropriated the money
also. J sues A to recover he car. Decide giving reasons whether J would
succeed. [CA PE II NOV. 2005]
Q3. P appoints A as his agent to sell his estate. A, on looking over the estate
before selling it, finds the existence of a good quality Granite–Mine on the
estate, which is unknown to P. A buys the estate himself after informing P
that he (A) wishes to buy the estate for himself but conceals the existence
of Granite–Mine. P allows A to buy the estate, in ignorance of the existence
of Mine. State giving reasons in brief the rights of P, the principal, against
A, the agent. What would be your answer if A had informed P about the
existence of Mine before he purchased the estate, but after two months, he
sold the estate at a profit of Rs. 1 lac? [CA PCC MAY 2008]

15.10 Principal’s liability for the acts of the agents

When agent acted If an agent has acted within the scope of his authority whether it is actual or
within his authority
ostensible or emergency principal is bound by its consequences towards third
parties.
When agent acted  When an agent has done an act which does not fall within any type of
beyond his authority, available to him, the principal shall be liable for such an
authority unauthorized act to the third party if he ratifies it.

15.11 Unnamed Principal

Meaning of Unnamed principal means a principal whose existence is dis closed by the
Unnamed principal agent but the name is not disclosed.
–
Liability of -: Once it is disclosed by the agent that he is an agent the contract made by the
Agency
unnamed principal agent binds the principal and the agent drops out of the transaction.
Liability of agent -: If agent declines to disclose the identity of the principal he becomes personally
labile on the contract.

15.12 Undisclosed Principal Section 231&233

Meaning of Where an agent having authority to contract on behalf of another makes the
undisclosed contract in his own name concealing not only the name of his principal but also
principal the fact that there is a principal, this principal is called undisclosed principal.
Rules in case of The following rules will apply in the case of an undisclosed principal :
undisclosed i. Agent’s liability – The agent would be personally liable to the third party
principal because he had made the contract as a principal himself.
ii. Principal’s Liability - :
In addition to the agent the principal may also be liable to third party.
Since in this case the existence of a principal behind the contracting agent
is also a reality the principal two would have a position in the contract.
Rights of third party  If the existence of the principal is made known to the other contracting party
before obtaining judgement against the agent, he may hold the agent or the
principal or both of them liable.
 If the principal discloses himself before the contract is completed, the other
contracting party may refuse to fulfil the contract, if he can show that, if he
had known who was the principal in the contract ,or if he had known that the
agent was not a principal , he would not have entered into the contract.

15.13 Pretended Agent Section 235 & 236

Meaning A person who untruly represents himself to be an agent of another and thereby
induces a third party a deal with him is called a pretended agent.

Liability of  A person untruly representing himself to be the authorized agent of another

pretended Agent ,and thereby inducing a third party to deal with him as such agent ,is liable, if
his alleged employer does not ratify his acts, to make compensation to the
other party
 In addition such a pretended agent may also be sued for fraud by the
aggrieved party.

15.14 Personal liability of agent Section 227, 228, 230

General Rule As a rule an agent cannot be personally held liable for them, unless there is a
contract to contrary (Section 230)..

Exception:- However, there are certain exceptions to this rule when an agent is presumed to be
personally liable,
Where the agent If an agent, while contracting with a third party expressly agrees to be personally
expressly agrees liable on the contract, he can be held personally liable for any breach of contract.
Where the agent Where an agent contracts for the sale or purchase of goods for a merchant
acts for a foreign residing abroad, he is presumed to be personally liable (Section 230).
principal
Where the agent Where an agent acts for an unnamed principal, he is personally liable to the third
acts for an party, if he declines to disclose the identity of the principal
unnamed
principal
Where the agent Where an agent acts for an undisclosed principal & contracts in his own name he
acts for an is personally liable to the third party.
Agency
undisclosed
principal
Where the agent An agent is also presumed to incur personal liability where he contracts on behalf
acts for a of a principal who, though disclosed, cannot be sued. (Section 230).
principal who
cannot be sued
Where the agent When an agent acts in excess of his real he will be personally liable to the third
exceeds his party for the excess part if it can be separated from authorized part or otherwise
authority for the whole transaction (Section 227 & 228).
Where there is a An agent also incurs personal liability where there is a trade usage or custom to
trade usage or that effect.
custom
Where agent’s Where the contract with the third party relates to a subject matter in which the
authority is agent has a special interest, agent is personally liable to the extent of his interest
coupled with because he is really a principal for that interest.
interest
PAST Q1. What tests can be applied in determining whether a person is an agent of
ATTEMPT another? State any five circumstances where under an agent is personally
QUESTIONS liable to a third party for the acts during the course of agency. [CA PE II MAY
2003]
Q2. State the circumstances when an agent is personally liable for the
contracts entered into by him on behalf of his principal. [CA PE II MAY 2005]

15.15 Irrevocable Agency Section 202, 204

When the authority given to an agent cannot be revoked it is said to be irrevocable agency. An agency
becomes irrevocable in the following cases
Where the agency  Where the agent has himself an interest in the subject matter of agency, the
is coupled with agency is said to be coupled with interest.
interest Section  An agency coupled with interest cannot be terminated to the extent of such
202. interest. In other words where the agent has himself an interest in the property
which forms the subject matter of the agency, the agency cannot be terminated
to the prejudice of such interest. However, the contract of agency may provide
otherwise.
Where agent has If the agent has exercised his authority to some extent, the principal cannot take
partly exercised away the agent’s authority for at least such acts & obligations which arise out of
his authority – the acts already done by the agent.
Sec. 204.
Where agent When an agent, while performing his duties, incurs a personal liability, the
incurs a personal principal cannot revoke agent’s authority because it may cause personal loss to
liability under him. However authority may be revoked after giving damages to the agent.
agency
PAST Q1. An "agency coupled with interest" may be terminated, at the instance of the
ATTEMPT principal at any time. [CA IPCC NOV. 2009]
QUESTIONS Q2. An agency in which the agent himself has interest in the subject matter of
agency is called:
(a) Agency by estoppel
(b) Agency by holding out
(c) Agency by necessity
(d) Agency coupled with interest[CA IPCC MAY 2011]
Q3. Sunil borrowed a sum of Rs. 3 lakh from Rajendra. Sunil appointed Rajendra
as his agent to sell his land and authorized him to appropriate the amount of
loan out of the sale proceeds. Afterwards, Sunil revoked the agency. Decide
under the provisions of the Indian Contract Act, 1872 whether the revocation
Agency
of the said agency by Sunil is lawful? 5[CA Inter.(IPC) MAY 2014]
Q4. Agency coupled with interest irrevocable[CA Inter.(IPC) MAY 2015]

15.16 Termination of agency Section 201,203, 207,209

Meaning of Like any contractual relationship an agency can also come to an end. This would
termination of be called termination of agency.
agency
Modes of Section 201 has pointed towards the circumstances which bring about termination
termination of of agency.An agency can come to end broadly under the following circumstances
Agency (1) By Acts of parties, and (2) By operation of law
Termination by The parties to agency i.e. the principal & the agent, may themselves bring an end
Acts of parties to there relationship in the following manner:
i. By mutual agreement – Like any other contract an agency may be brought to
an end by a mutual agreement between the two parties to that effect. Such an
agreement may be made at any time & with any terms between the parties.
ii. By revocation by principal – The principal is allowed to revoke the authority
granted to the agent & thereby terminate the relationship.
By renunciation by agent
 Agent too is free to break off his relationship with the principal (Section 201).
 His breaking off the relationship has been termed as renunciation. He too is
required to follow proper procedure to renounce his business or else he shall be
guilty of breach of contract.

Termination by Under this category would fall such circumstances when the agency will come to
operation of Law an end not by the parties doing anything for it but by the application of some
provisions of law relevant for situation. The circumstances are as follows
Completion of  Where the agency is created for a specific business only it comes to an end on
business the completion of that business.

Death or insanity  Death of principal or agent will terminate the personal relationship that the two
of either party had created in the form of agency.
Insolvency of  When the principal is adjudicated as insolvent by court he becomes incapable to
principal assume fresh legal obligations ands therefore agency terminates.
Expiry of time When an agency has been created for a fixed time period, it comes to an end on
the expiry of that time period whether the purpose of its creation is achieved or
not.
Supervening Subsequent to the creation of agency, if an event takes place which makes the
Impossibility continuation of agency, or the work under it impossible or illegal, the agency
comes to an end.