Termination of Agency under Indian Contract Act, 1872
Termination of Agency under the Indian Contract Act, 1872
What is Agency?
An agency relationship is one in which a person (called the principal) authorizes another person (called the agent) to act on his behalf and bind him legally.
The rights and duties of agents and principals are governed primarily by Sections 182 to 238 of the Indian Contract Act, 1872.
Termination of Agency: Overview
The agency relationship is not permanent and can be terminated in several ways. Termination may occur:
By acts of parties (principal or agent),
By operation of law,
By mutual agreement, or
Upon the occurrence of certain contingencies.
Modes of Termination of Agency
1. By Agreement between Principal and Agent
The agency can end by mutual consent.
Both parties agree to terminate the relationship.
The agency can be revoked by the principal or renounced by the agent.
Example: If an agent decides to resign and the principal agrees.
2. By Revocation by the Principal
The principal has the right to revoke the agent’s authority at any time.
However, if the agency is coupled with interest (meaning the agent has some interest in the subject matter), the principal cannot revoke without the agent’s consent.
Revocation may be express or implied.
3. By Renunciation by the Agent
The agent can renounce the agency at any time.
If the agency is coupled with interest, the agent must not renounce in a way that causes loss to the principal without compensation.
Renunciation should be communicated to the principal.
4. By Completion of Purpose
If the agency was created for a specific purpose, it terminates once the purpose is achieved.
Example: An agent appointed to sell a specific property; once sold, agency ends.
5. By Expiry of Time
When the agency is created for a fixed term, it automatically ends after that period.
6. By Death of Principal or Agent
The agency terminates automatically upon the death of either party.
Neither the principal nor the agent can continue the relationship once one dies.
Exception: If agency is coupled with interest, rights may survive for recovery of interest.
7. By Insanity of Principal or Agent
If either the principal or the agent becomes unsound of mind, agency is terminated.
The rationale is that an unsound person cannot contract or delegate authority.
8. By Bankruptcy of Principal or Agent
If the principal or agent is declared bankrupt, the agency is terminated.
This is because the capacity to contract or manage property is affected.
9. By Change in Law
If a change in law makes the purpose of the agency illegal or impossible, the agency terminates.
10. By Destruction of Subject Matter
If the subject matter of the agency is destroyed or ceases to exist, the agency terminates.
Example: If an agent is appointed to sell a specific goods consignment which is destroyed by fire.
11. By Supervening Impossibility
If performance of the agency becomes impossible due to circumstances beyond control, it terminates.
12. By Revocation of Authority
The principal may revoke the agent’s authority either expressly or implicitly.
However, in case of agency coupled with interest, revocation is not allowed without agent’s consent.
Relevant Sections of Indian Contract Act
| Section | Subject |
|---|---|
| Section 201 | Revocation of agency by principal |
| Section 202 | Renunciation of agency by agent |
| Section 203 | Revocation or renunciation causing loss |
| Section 207 | Revocation by principal in agency coupled with interest |
| Section 209 | Effect of death, insanity, or bankruptcy on agency |
Key Judicial Decisions
1. Venkata Ramana v. Commissioner of Income Tax (1954)
Held that agency terminates on death of principal or agent.
2. Yusuf Abdul Aziz v. Prabhu Dayal (1962)
Agency coupled with interest cannot be revoked by the principal arbitrarily.
3. Halsbury’s Laws of England
Provides general principles on termination including revocation, renunciation, and effect of supervening events.
Effect of Termination
On termination, the agent’s authority ceases.
The agent must return all documents and property belonging to the principal.
The principal is not bound by any acts of the agent done after termination.
However, acts done before termination remain valid.
Summary Table of Termination Modes
| Mode of Termination | Explanation | Effect on Agency |
|---|---|---|
| Agreement between parties | Mutual consent to end | Ends agency |
| Revocation by Principal | Principal withdraws authority | Ends agency (except coupled with interest) |
| Renunciation by Agent | Agent gives up agency | Ends agency |
| Completion of Purpose | Agency created for specific purpose | Ends when purpose achieved |
| Expiry of Time | Fixed term agency ends | Ends at expiry |
| Death | Death of principal or agent | Ends agency |
| Insanity | Unsoundness of mind | Ends agency |
| Bankruptcy | Bankruptcy declaration | Ends agency |
| Change of Law | Becomes illegal | Ends agency |
| Destruction of Subject | Subject matter destroyed | Ends agency |
| Supervening Impossibility | Performance becomes impossible | Ends agency |
Conclusion
The agency relationship under the Indian Contract Act, 1872, is flexible and can be terminated in various ways, ensuring fairness to both principal and agent. The law protects interests by allowing revocation and renunciation, but also places limits where the agent has an interest in the agency. Understanding these modes helps in resolving disputes arising from termination of agency.
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