Introduction

The relationship of principal and agent may end in any of the ways mentioned in section 201. The section provides for the following modes of termination :

1. Revocation ( to revoke means to cancel/cancel officially)
2. Renunciation by agents ( to renounce means resign/surrender)
3. Completion of business
4. Principal or agent’s death
5. Principal or agent becoming person of unsound mind.
6. Insovency of principal.
7. Expiry of time.

Termination of agency

Section 201 : 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 subject-matter 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 be, 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, not is it terminated by his insanity or death.

In the well-known case of Smart v. Sanders, WILDE, CJ stated the rule : “Where an agreement is entered into on a sufficient consideration, whereby an authority is given for the purpose of securing some benefit to the donee of the authority, such an authority is irrevocable. This is what is usually meant by an authority coupled with an interest, and which is commonly said to be irrevocable”.

Pestanji v. Matchett : The simplest case of such agency occurs when the principal owes something to the agent and authorises him to sell the principal’s goods and pays himself out of the sale proceeds.

An agency of this kind is not even terminated by the principal’s death.

But the doctrine of agency coupled with interest is not without qualification. The interest of the agent must exist at the time of the creation of the agency.

By Revocation

Sec 203 : When principal may revoke agent’s authority

The principal may, save as is otherwise provided by the last preceding section, revoke the authority given to his agent at any time before the authority has been exercised, so as to bind the principal.

Section 207 further provides that

Sec 207: Revocation and renunciation may be expressed or implied

Revocation or renunciation may be expressed or may be implied in the conduct of that principal or agent respectively.

Illustration

A empowers B to let A’s house. Afterwards A lets it himself. This is an implied revocation of B’s authority.

Where the owner of a colliery(coal mine) appointed a sole selling agent for his coal for seven years it was held that, the owner could sell the colliery even before the expiry of this period and thus terminate the agency. He was not bound to keep his colliery. (Rhodes v. Forwood)

An agency was deemed to have ended automatically by operation of law when a war broke out between two countries to which the principal and agent respectively belonged. This is so because agency as a contract is determined by any event which terminates a contract. (Stevenson & Sons Ltd. v. Akt Fur Cartonnagen Industries).

Revocation is subject to following conditions :

a. Revocation Operates Prospectively

Sec 204 : Revocation where authority has been partly exercised

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

Illustrations

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

(b) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A’s money remaining in B’ s hands. B buys 1,000 bales of cotton in A’ s name, and so as not to render himself personally liable for the price. A can revoke B’s authority to pay for the cotton.

b. Notice Precedent to Revocation 

Where an agency has been created for a fixed period, a reasonable notice would be necessary to terminate it (related section 206).

The length of notice will depend, among other things, upon the length for which the agency has continued.

In a Madras case reasonable notice for premature determination was not given. The agent was earning Rs. 4000 permonth. The court allowed  Rs. 12000 as compensation in lieu of reasonable notice which should at least have been for three months (J.K.Sayani v. Bright Brothers)

c. Liability to Compensate

205. Compensation for revocation by principal, or renunciation by agent

Where there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause.

206. Notice of revocation or renunciation

Reasonable notice must be given of such revocation or renunciation, otherwise the damage thereby resulting to the principal or the agent, as the case may be, must be made good to the one by the other.

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.

The liability to pay compensation does not arise where the agency is not for a fixed period. The Madras High Court did not allow any compensation to the agent for the unilateral termination of an agency which, though created without any stipulation for its duration, had lasted 1952 to 1964. (Bright Brothers v. J.K. Sayani)

Thus, no compensation is payable in the following cases.

1. Where the agency has not been created for any definite period.
2. Where, though created for a specified length of time, reasonable notice for its termination has been given or the termination is otherwise based upon a sufficient cause.

d. Agency coupled with interest

In certain circumstances, however, an agency becomes irrevocable. This happens when the agent is personally interested in the subject-matter of agency. (Sec 202).

2. By renunciation by agent

As per section 206, an agent may renounce the business of agency in the same manner in which the principal has the right of renunciation.

3. Completion of business

An agency is automatically and by operation of law determined when its business is completed. (S 201).

4. Death or insanity

An agency is determined automatically on the death or insanity of the principal or the agent. (S201)

5. Principal’s insolvency

An agency ends on the principal being adjudicated insolvent. (S 201)

6. On Expiry of time

Where an agent has been appointed for a fixed term, the expiration of the term puts an end to the agency, whether the purpose of the agency has been accomplished or not.

Effect of termination

Sec 208 : When termination of agent’s authority takes effect as to agent, and as to third persons :

The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes known to him, or, so far as regards third persons, before it becomes known to them.

Illustrations

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

(b) A, at Madras, by letter directs B to sell for him some cotton lying in a warehouse in Bombay, and afterwards, by letter, revokes, his authority to sell, and directs B to send the cotton to Madras. B after receiving the second letter, enters into a contract with C, who knows of the first letter, but not of the second, for the sale to him of the cotton. C pays B the money, with which B absconds. C’s payment is good as against A.

(c) A directs B, his agent, to pay certain money to C. A dies, and D takes out probate to his will. B, after A’s death, but before hearing of it, pays the money to C. The payment is good as against D, the executor.

209. Agent’s duty on termination of agency by principal’s 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 representative, of his late principal, all reasonable steps for the protection and reservation of the interests entrusted to him.

210. Termination of sub-agent’s authority

The termination of the authority of an agent causes the termination (subject to the rules herein contained regarding the termination of an agent’s authority) of the authority of all sub-agents appointed by him.