ABSTRACT

An agent's authority can be terminated at any time. If the trust

between the agent and 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.

As per Section 201 to 210 The Indian Contract Act, 1872, an agency

may come to an end in a variety of ways:

(i) By the principal revoking the agency – However, principal

cannot revoke an agency coupled with interest to the prejudice of

such interest. Such Agency is coupled with interest. An agency is

coupled with interest when the agent himself has an interest in the

subject-matter of the agency, e.g., where the goods are consigned

by an upcountry constituent to a commission agent for sale, with

poor to recoup himself from the sale proceeds, the advances made

by him to the principal against the security of the goods; in such a

case, the principal cannot revoke the agent’s authority till the

goods are actually sold, nor is the agency terminated by death or

insanity. (Illustrations to section 201) (ii) By the agent renouncing

the business of agency; (iii) By the business of agency being

completed; (iv) By the principal being adjudicated insolvent

(Section 201 of The Indian Contract Act. 1872)

The principal also cannot revoke the agent’s authority after it has

been partly exercised, so as to bind the principal (Section 204),

though he can always do so, before such authority has been so

exercised (Sec 203).

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Further, as per section 205, if the agency is for a fixed period, the

principal cannot terminate the agency before the time expired,

except for sufficient cause. If he does, he is liable to compensate

the agent for the loss caused to him thereby. The same rules apply

where the agent, renounces an agency for a fixed period. Notice in

this connection that want of skill continuous disobedience of lawful

orders, and rude or insulting behavior has been held to be sufficient

cause for dismissal of an agent. Further, reasonable notice has to

be given by one party to the other; otherwise, damage resulting

from want of such notice, will have to be paid (Section 206). As per

section 207, the revocation or renunciation of an agency may be

made expressly or impliedly by conduct. The termination does not

take effect as regards the agent, till it becomes known to him and

as regards third party, till the termination is known to them

(Section 208).

When an agent’s authority is terminated, it operates as a

termination of subagent also. (Section 210).

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ACKNOWELEDGMENT

Firstly I would thank the almighty GOD for giving me strength to

complete the task which I was assigned.

I would also like to thank Gujarat National Law University for

assigning me this project and giving me the opportunity to study

about this topic which is considered to be the most important in the

criminal law.

I would also extend my gratitude to Mr. R. K. Singh, Faculty of Law

for all the help and support in the completion of my project report.

Lastly I would thank my parents and friends for all their support

and help.

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LIST OF ABBREVIATIONS

AIR All India Reporter

All ER All England Law Reports

CA Chancery Appeal

Cal Indian Law Reports, Calcutta Series, from 1876-

CLR Commonwealth Law Reports

HL House of Lords

HP Indian Law Reports, Himachal Pradesh

IA Law Reports Indian Appeals

Ker Indian Law Reports, Kerela Series

Mad Indian Law Reports, Madras Series

MHC Madras High Court Reports

MP Indian Law Reports, Madhya Pradesh Series

Ori Indian Law Reports, Orissa Series

PC Privy Council

Pun Indian Law Reports, Punjab Series

QB Law Reports, Queen’s Bench

Sau Saurashtra Law Reports

SC Supreme Court

SCC Supreme Court Cases

v Versus

Ves Sen Vesey Senior’s Report

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LIST OF CASES

1. (Cf.) French & co. v. Leeston Shipping Co., (1992) 1 AC 451.

2. Agarwal Jorawarmal v. Kasam, AIR 1937 Nag 314;

3. Alliance Bank of Simla Ltd v. Amritsar Bank, AIR 1915 Lah

214.

4. Atul v. Laxman, (1909) 36 Cal. 609.

5. Badrinaraian Agrawall v.Brijnarayan Roy, AIR 1917 Cal 436

6. Banarshi Agarwall v. Sankarlal Agarwalla, AIR 1961 Assam 13.

7. Birat Chandra Dagara v. M/s. Taurian Exim Pvt. Ltd., AIR 2005

Ori 147

8. Blackburn v. Scholes (1810)2 Camp 343;

9. Boulton Bros. & Co. v. New Victoria Mills Co., (1929) 26 ALJ

1119

10.Bright Bros Pvt. Ltd. v. JK Sayani, AIR 1976 Mad 55.

11.Bristow v. Taylor, (1817) 171 ER 568;

12.Burn v. Carvalho, (1239) 41 ER 265

13.Carmicheal’s Case, (1896) 2 Ch 643;

14.Carnegie, [1969] 85 LQR 392.

15.Clerk v. Laurie, (1857) 157 ER 83;

16.Clouston v. Corry , (1906) AC 122; Pearce v. Foster, (1886) 17

QBD 536.

17.Cuckson v. Stones, (1858) 120 ER 902

18.Daily Telegraph v. M’Laughlin, (1904) AC 776

19.Dasarath v. Brojo Mohan, (1914) 18 CLJ 621.

20.Day v. Wells, (1861) 54 ER 872;

21.De Comas v. Prost, (1865)16 ER 59;

22.Development of Industries (India) P. Ltd v. Commissioner of

Income Tax, AIR 1968 Cal 492 : 72 Cal WN 416.

23.Dilchand v. Hazarimal, AIR 1932 Nag. 34;

24.Drew v. Nunn, (1879) 4 QBD 661;

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25.Ebrahim v. Chunilal, (1911) 35 Bom 302

26.Edgar v. Fowler, (1803) 102 ER 582.

27.EP Nelson & Co. v. Rolfe, [1949]2 All ER 584 (CA)

28.Freeman v. Fairlie, (1838) 8 LJ Ch. 44.

29.Frith v. Frith, (1906) AC 254;

30.Godhandas v. Firm of Gokal Khataoo, AIR 1926 Sind 264;

31.Hamilton v. Spottiswoode, (1849) 154 ER 1182.

32.Harihar Prasad v. Kesho Prasad, (1925) Pat 68.

33.Hastelow v. Jackson, (1828) 108 ER 1026;

34.Hill v. Royds, (1869) 8 Eq 290;

35.Hingu Lal v. Sarju Prasad, AIR 1937 All 363;

36.Hudson v. Granger, (1821) 106 ER 1103

37.Inchbold v. Western Nilgherry Coffee Co., (1864) 144 ER 293

38.International Oil Co. v. Indian Oil Co. Ltd., AIR 1969 Mad 423;

Thathaiah M & S.M. Railway, ILR (1957) Mad 215

39.Ishwarappa v. Arunkumar, AIR 2004 Kant 417

40. Jafferbhoy v. Charlesworth,(1893) 17 Bom. 520

41.Janardhan Jaikrishna v. Gangaram Mangalchand, AIR 1951

Nag 313.

42.Kashi Ram & anr v.Raj Kumar & Ors., AIR 2000 Raj. 405,406

43.Kathoom Bivi v. Arulappa Nadar, AIR 1970 Mad.76;

44.Kinattikara Madhavan Nair v. MR Rly Manavikram Zamorin

Maharajah Avergal, AIR 1928 Mad 906

45.Kirtyanand v. Ramanand, (1936) Pat. 456.

46.Kishen Devi v. Banwar Lal, AIR 1928 Lah 688;

47. Kondayya v. Narasimhulu, (1896) 20 Mad 97

48.Kongatti Valia Nair v. Subramania, (1899)9 MLJ 290;

49.Kulsekarapatnam Hand Match Workers’ Co-operative Cottage

Industrial Society Ltd. v. Radhelal Lallolal, AIR 1971 MP 191

50.Lakshmandas Khandelwal v. Raghumull, AIR 1919 PC 49

5

51.Lakshmi Chand v. Firm of Chajju Mal Ratan Lal, AIR 1926 Lah

200.

52.Lakshmichand v. Chotaram, (1900) 24 Bom. 403.

53.Llanelly Rly and Dock Co v. London and North Western Rly

Co, (1875) LR 7 HL 550;

54.Ma Byaw v. Mg Tun Hlaing, (1934) Ran 341,

55. Mahendra Pratap Singh v. Padam Kumari Devi, AIR 1993 All

143.

56.Maung Lu Gale v. U. Po Hlaing,(1934) Ran. 104;

57.Mohendra v. Kail Prasad, (1903) 30 Cal.265

58.Moosajee Ahmad & Co v. Adm. General, Bengal, (1921) 3 LLJ

265.

59.MSA Pl Palaniappa Chetty v. T Mr Alagappa Chetty, AIR 1916

Mad 1104

60.Mujjid-un-Nissa v. Abdur Rahim, 28 IA 15.

61. Murtunjoy v. John Cockrane, (1865)10 MIA 229 (243).

62.Mutharasu Thevar v. Mayandi Thevar, AIR 1968 Mad 333.

63.N.S.Srinivas v. Madduri Mallareddy, AIR 2005 AP 177.

64.Narasinga v. Muthusami Naliker, (1897) 7 MLJ 218

65.Narayanan Chettiar v. Kaleswar Mills, AIR 1952 Mad 515.

66.Page v. Combined Shipping & Trading Co. Ltd., (1997) 3 All

ER 656 (CA)

67.Parker v. Smith, (1812)104 ER 1133

68.Pearson v. Graham, ((1837) 112 ER 344

69.PMARm Muthiah Chettiar v. AVA Chidambaram Chetti, AIR

1918 Mad 1200.

70.Pool v. Pool, (1889) 58 LJP 67

71.Popular Shoe Mart v. K Srinivasa Rao, AIR 1990 NOC 87 (AP).

72.Prickett v. Badger, (1856) 1 CBNS 296

73.Raghumull v. Luchmondas, AIR 1917 Cal 52

74.Rajaram Nandlal v. Abdul Rahim, AIR 1915 Sind 30.

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75.Read v. Anderson, [1881-85] All ER Rep 1104.

76.Rhodes v. Forwood, (1876) 1 AC 256.

77.Ruchiram-Sukha Nand v. Charan Das AIR 1928 Lah 833;

78.Sayam v. Bright Brothers, (1980) 1 MLJ 130.

79.Seton v. Slade (1802)7 Ves 265, p.276

80.Shankar Singh v. Toshan Pal Singh,AIR 1934 All 553.

81.Shaw Wallace & Co, AIR 1931 Cal 676

82.Smart v. Sandars, (1848) 136 ER 1152;

83.Sorabji Dhunjibhoy Medora v. Oriental Govt. Security Life

Assurance Co Ltd., AIR 1944 Bom 166 (two years was

reasonable).

84.Southern Railways Ltd v. S.M.Krishnan, AIR 1990 Sc 673.

85.SRMCTSSPA Chettyar Firm v. U on Maung, AIR 1940 PC 211;

86.State of Kerela v. G.L.Kihikara, 1966 Ker. Lj 487

87.Stevenson v. Actiengesellscaft & Co., (1918) AC 239.

88.Subhash v. Feroze Khan, AIR 1982 Del. 114

89.Sures Kanta Banerjee v. Nawab Ali Sikdar, AIR 1916 Cal 800

90.Taylor v. Browners, (1876) 1 QBD 291;

91.Venkanna v. Achutaramanna, (1938)1 MLJ 610

92.Venkatachalam Chetty v. ANRM Narayan Chetty, AIR 1916

Mad 281

93.Vishnucharya v. Ramachandra, (1881) 5 Bom 253.

94.Warlow v. Harrison, (1858) 120 ER 920; Day v. Welis, (1861)

54 ER 872.

95.Warwick v. Slade, (1811) 170 ER 1329.

96.Yonge v.Toynbee, [1908-10] All ER Rep 204 (CA)

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INTRODUCTION

An agency may be terminated by:

(i) Revocation of the agent’s authority by the principal (Sec.

203-207);

(ii) Agent renouncing the agency ( Sec. 205);

(iii) Completion of the business of agency;

(iv) Death of the principal or agent (Sec. 209);

(v) The principal or agent becoming of unsound mind (Sec.

209);

(vi) The principal being adjudicated an insolvent.

An agency is deemed to continue in the absence of anything that

would prove termination of the agency1 on one or the other grounds

mentioned in the sections or below2. Termination of agency is a

question of fact and not of law, and turns upon the circumstances of

each case.3

This section is not exhaustive.4 An agency may be terminated by

other modes, viz:

(i) By mutual agreement;

(ii) Completion of the term of agency by expiry of time agreed

upon;

(iii) Destruction of the subject matter of the agency;

(iv) The agency becoming subsequently unlawful;

(v) Dissolution of the principal firm.

1 Kishen Devi v. Banwar Lal, AIR 1928 Lah 688; Banarshi Agarwall v. Sankarlal Agarwalla, AIR 1961 Assam 13.2 Llanelly Rly and Dock Co v. London and North Western Rly Co, (1875) LR 7 HL 550; Carnegie, [1969] 85 LQR 392.3 Kinattinkara Madhavan Nair v. MR Rly Manavikram Zamorin Maharaja Avergal of Calicut, AIR 1928 Mad 906.4 Janardhan Jaikrishna v. Gangaram Mangalchand, AIR 1951 Nag 313.

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An agency is terminated by an event which terminates a contract,

viz performance, recission, etc. the Law Commission of India

recommended that in these circumstances determining an agency

must be specifically included in this section, as also that insolvency

of agent.5

AIMS AND OBJECTIVES OF STUDY:

The aim and object of the study is to elucidate and enumerate with

illustrations, cases, judgements and opinions of well known jurists,

authors and analysts, the clauses relating to ‘termination of an

agency’. The project also intends to discuss important and

landmark cases and judgements and lay down the history and

growth of the law under the relevant sections.

HYPOTHESIS

From this project, the terms, situations and circumstances under

which an agency can be terminated become comprehensible. The

conditions and circumstances under which an agency can be

terminated have also been elucidated.

METHODOLOGY

The doctrinal method of research has been implemented in

preparing this study, by referring to various secondary sources for

conforming to the requisites of the Indian Contract Act, 1872. 

5 Thirteenth Report of the Law Commission of India 1958, para 158 recommended that the first four grounds of termination if agency be numbered (a)-(d) and the following be added (proposed amendments in italics):…(e) by either the principal or agent being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors;(f) by the expiry of the period of agency if any;(g) by the destruction of a material part of the subject matter of the agency;(h) by the happening of any event which render the agency unlawful or upon happening of which it is agreed between the principal and the agent that the authority shall determine;(i) by dissolution of the principal, where the principal is a firm or a company or other corporation.

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SECTION 201 OF THE INDIAN CONTRACT ACT

Sec. 201 of the Indian Contract Act reads as follows:

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.

This section deals with the several ways in which the relationship of

principal and agent comes to an end. They are:

(1) Revocation by principal

(2) Renunciation by agent

(3) Completion of the business of the agency

(4) Death of principal or agent

(5) Insanity of principal or agent

(6) Insolvency of the principal

The enumeration is not exhaustive. For instance, there can be no

doubt that the expiry of the time fixed for the agency or the

destruction of the subject matter of the agency puts an end to the

agency6, likewise by breach of contract, by destruction o the

subject matter of the agreement and so-on.7 If the freight to cancel

an agency is reserved in case the agent fails to do a specific amount

of business within a certain period of agency may be cancelled if

the condition is violated.8 Again the agency may subsequently

6 (Cf.) French & co. v. Leeston Shipping Co., (1992) 1 AC 451.7 Development of Industries (India) P. Ltd v. Commissioner of Income Tax, AIR 1968 Cal 492 : 72 Cal WN 416.8 State of Kerela v. G.L.Kihikara, 1966 Ker. Lj 487

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become unlawful, in which case also the agency necessarily

ceases.9

REVOCATION

The principal has the right subject to certain limitations to revoke

the agency and even so the agent in his turn has also the right to

renounce the agency subject equally to certain terms and

conditions. It is in this context that the terms ‘revocation’ and

“renunciation” which primarily appear and are projected in the

forefront in the sub-head or revocation of authority in Sec. 207-210

have to be read together instead of being treated in a truncated

way for the purpose of interpretation.10 It is provided by Sec. 207

infra, that revocation may be express or implied from conduct. It is

open to the principal to revoke the authority at any time before it is

exercised so as to bind him.11 Where the revocation is wrongful or

premature the principal is liable to make compensation, vide Secs.

205 and 206 infra12. In case of authority given by two or more

principals jointly, it is enough if one gives notice or revocation.13 On

revocation the agent has no right to possession of principal’s

property. He has no right to interfere with the principal’s

business.14

RENUNCIATION OF AGENCY

An agent may renounce his authority at any time before completion

of the agency by giving a notice, but he may become liable to the

principal for damages for breach of contract of agency arising out

9 Stevenson v. Actiengesellscaft & Co., (1918) AC 239.10 Sayam v. Bright Brothers, (1980) 1 MLJ 130.11 Lakxhmichand v. Chotaram, (1900) 24 Bom. 403. Freeman v. Fairlie, (1838) 8 LJ Ch. 44.12 Venkatachalam v. Narayana, (1916) 39 Mad 376.13 Bristow v. Taylor, (1817) 171 ER 568; Kirtyanand v. Ramanand, (1936) Pat. 456.14 Southern Railways Ltd v. S.M.Krishnan, AIR 1990 Sc 673.

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of earlier renunciation15. It has been held that abandonment of the

services by setting up a title adverse to the principal will be

evidence of renunciation.16

COMPLETION OF BUSINESS OF AGENCY

An agency may be terminated after the agent has completed the

business of the agency, or also where the business has been

completed in any other manner, viz by the principal himself, or

through another agent.

Where an agent for the sale of goods receives the price, the agency

does not terminate on the sale of goods, but continues until

payment of the price to the principal; the agent being ‘bound to pay

to his principal all sums received on his account’ under Sec. 218.

‘Clearly then, the business does not terminate on receipts of the

money by the agent, in as much as there is subsequent obligation to

account for the sums and to pay them.’17 The other view is that the

business of agency of sale of goods is completed on completion of

the sale and receipt of price by the agent.18 The agent, then, has no

power to alter the terms of the contract without fresh authority

from the principal.19

The Law Commission of India agreed with the latter view that an

agency is determined when the agent ceases to represent the

principal, though his liability in respect of his acts done by him or

15 Rajaram Nandlal v. Abdul Rahim, AIR 1915 Sind 30.16 Atul v. Laxman, (1909) 36 Cal. 609.17 Hingu Prasad v. Sarju Prasad, AIR 1937 All 363.18 Venkatachalam Chetty v. ANRM Narayan Chetty, AIR 1916 Mad 281 (agency terminates on sale and does not continue until payment of price); Godhandas v. Firm of Gokal Khataoo, AIR 1926 Sind 264; Ruchiram-Sukha Nand v. Charan Das AIR 1928 Lah 833; Hingu Lal v. Sarju Prasad, AIR 1937 All 363; Lakshmi Chand v. Firm of Chajju Mal Ratan Lal, AIR 1926 Lah 200 (date fixed for settlements).19 Blackburn v. Scholes (1810)2 Camp 343; Seton v. Slade (1802)7 Ves 265, p.276

13

by his agent continues; but did not consider it necessary to propose

any change in the language of the Sec.20

The authority of an agent to collect bills and to remit the amount

when realized, by drafts, terminates as soon as the drafts are

dispatched.21

DEATH OF PRINCIPAL OR AGENT

Death of the principal or agent terminates the agency at once,

irrespective of whether the other has notice to that effect;22 though

the authority to bind third parties continue until the third party has

notice of death. A power of attorney to an agent to present a

document for registration is revoked by the death of the principal;

and where the principal died before, the presentation, and the

registrar, knowing of the principal’s death, accepted and registered

the document, the registration was invalid.23 Where a power of

attorney is given by the members of a joint Hindu family to one of

them in connection with the family business, it is a question of

construction in each case whether the power comes to an end on

the death of any of them, or whether it is to continue even after

then.24 Thus, where a karta of such a family appoints an agent to

manage family property, and he dies, the agency continues,

because it relates to the joint family, and not the karta personally25.

Where there are two agents, death of one of them would terminate

the agency only in respect of the deceased and not of the surviving

20 Thirteenth Report of the Law Commission of India 158, para 15721 Alliance Bank of Simla Ltd v. Amritsar Bank, AIR 1915 Lah 214.22 Pool v. Pool, (1889) 58 LJP 6723 Mujjid-un-Nissa v. Abdur Rahim, 28 IA 15.24 Badrinaraian Agrawall v.Brijnarayan Roy, AIR 1917 Cal 436 (death of one principal does not terminate his authority as regards surviving principal). 25 Shankar Singh v. Toshan Pal Singh,AIR 1934 All 553.

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agent26, unless a contrary intention appears from the terms of the

agency.

INSANITY OF PARTIES

The authority of an agent is terminated if the principal becomes of

incapable by reason of mental illness of managing his affairs.27 The

principal’s insanity infact, is sufficient to annul the agent’s

authority28, it is not necessary that he be declared so. The

principal’s insanity terminates the agency even though the agent

has no notice of it.

The section seems to be in consonance with the rule of modern

English Law.29 The earlier English view was that the insane person

must be certified to be so in a proper inquiry conducted for that

purpose.

INSOLVENCY OF PARTIES

Agency is also terminated by the insolvency of the principal30. But,

where the principal is a firm and one of the partners becomes

insolvent, the agency does not ipso facto terminate31. The section is

silent as to the effect of the agent’s insolvency. Considering that the

agent is onle a connecting link between the principal and the third

parties, there may be ground for saying that the insolvency puts an

end to the agency, except in cases where the act to be done by the

agent is merely formal.32 In any event authority to receive payment

on behalf of the principal is determined by the agent’s insolvency.33

26 Agarwal Jorawarmal v. Kasam, AIR 1937 Nag 314; Raghumull v. Luchmondas, AIR 1917 Cal 52 (death of one agent does not terminate agency of co-agent).27 SRMCTSSPA Chettyar Firm v. U on Maung, AIR 1940 PC 211; Mahendra Pratap Singh v. Padam Kumari Devi, AIR 1993 All 143.28 Yonge v.Toynbee, [1908-10] All ER Rep 204 (CA).29 Drew v. Nunn, (1879) 4 QBD 661; Daily Telegraph v. M’Laughlin, (1904) AC 776 30 Pearson v. Graham, ((1837) 112 ER 34431 Agarwal Jowarmal v. Kasam, ILR (1937) Nag 2832 Parker v. Smith, (1812)104 ER 113333 Hudson v. Granger, (1821) 106 ER 1103

15

It should however be remembered that in cases of death, lunacy or

bankruptcy of the principal, the fact of the death or insanity must

be known to the other party.

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SECTION 202- TERMINATION OF AGENCY

WHERE AGENT HAS AN INTEREST IN SUBJECT

MATTER

Section 202 of the Indian Contract Act reads as following:

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.

This section forms one of the limitations to the general rules as to

revocation of agency. Decided cases with reference to the section

chiefly center round the question of what constitutes an “interest in

the subject-matter of the agency”. The corresponding English rule

is that, if the agency has been created for effectuating any security

or protecting any interest of the agent, it is irrevocable during the

existence of such interest. Where an agreement is entered into on a

sufficient consideration whereby an authority, such authority is

irrevocable.34it will be observed that the language of the section

wider than that to the English rule. But the English rulings have

however been applied.

Where it is clear that from the power of attorney executed by the

appellant in respect of s mine that right of lease has been

transferred by the appellant creating an interest in favour of the

respondent by receiving consideration, the agency can be said to be

coupled with interest and as such cannot be revoked.35

34 Frith v. Frith, (1906) AC 254; Smart v. Sandars, (1848) 136 ER 1152; Clerk v. Laurie, (1857) 157 ER 83; In re, Carmicheal’s Case, (1896) 2 Ch 643; Kongatti Valia Nair v. Subramania, (1899)9 MLJ 290; Mutharasu v. Mayandi, (1968) 2 MLJ 74.35 Birat Chandra Dagara v. M/s. Taurian Exim Pvt. Ltd., AIR 2005 Ori 147

17

An agency to be irrevocable should create an interest in the subject

matter contemporaneously with the documents wherein such

agency is created and it cannot be left to guess chance of inference

unless such a thing is available in the document itself, all such

other power given, to the agent mainly for the purpose of

reimbursement of money spent by him for and on behalf of the

principal, even in such reimbursement should be by way of

mortgage or sale of properties, would create only a right incidental

to such agency and would amount to the creation of any interest in

the agent over the subject concerned.36

Where an agent who has not been specifically authorized in the

power of attorney to incur loan liability in his personal capacity, the

plea of the agent that the principal cannot revoke the power of

attorney until the liabilities incurred by him are settled is not

acceptable as the agency is not one coupled with interest.37

FACTORS:

The question of authority coupled with interest assumes great

practical importance in the case of factors who have advanced

moneys against goods entrusted to them for sale. The general rule

is that if from the language of the document creating the agency or

the dealings between the principal and agent, it is possible it infer

an interest, the authority is not revocable. In Smart v. Sanders38,

the court observed:

“The doctrine… applies only to cases where the authority is

given for the purpose of being a security as a part of the security,

not to cases where the authority is given independently and the

interest of the donee arises only incidentally….. The making of an

36 Muthurasu Thevar v. Mayandi Thevar, AIR 1968 Mad 33337 Ishwarappa v. Arunkumar, AIR 2004 Kant 41738 (1848) 136 ER 152 : 75 RR 849

18

advance may be a good consideration for an agreement that the

authority to sell shall be no longer revocable, but such an effect will

not arise independently of agreement.”

It is certainly true as was remarked in Jafferbhoy v. Charlesworth,39

that mere advances by a factor whether at time of his employment

as such or subsequently cannot have the effect of altering the

revocable nature of authorities to sell, unless there be an

agreement, express or implied. But in Kondayya v. Narasimhulu40

where the factor was authorized to sell at the best available price

and in case of deficit, draw on the consignor, the court took into

consideration the course of dealings between the parties and held

that an interest in the subject-matter of the agency had been

created and so held the authority irrevocable. Conversely, in

Venkanna v. Achutaramanna,41 where a power of attorney

authorized the agent to conduct a suit on behalf of the principals

and provided that when the subject-matter of the suit was

recovered, the agent would be entitled to a share, it was held that it

was not a case of authority coupled with an interest.

39 (1893) 17 Bom. 520; De Comas v. Prost, (1865)16 ER 59; Frith v. Frith, (1906) AC 254; Murtunjoy v. John Cockrane, (1865)10 MIA 229 (243).40 (1896) 20 Mad 97.41 (1938)1 MLJ 610; Dilchand v. Hazarimal, AIR 1932 Nag. 34; Subhash v. Feroze Khan, AIR 1982 Del. 114 (an agent appointed on commission

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SECTION 203- WHEN PRINCIPAL MAY REVOKE

AGENT’S AUTHORITY

Section 203 of the Indian Contract Act reads as follows:

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.

Revocation before authority exercised- It is open to the principal to

revoke the authority so long as no act has been done by the agent

which will bind the principal and no rights of third parties have

come into existence. For instance the authority given to an

auctioneer may be recalled at any time before the goods are

knocked down.42 Similarly, the authority of a policy broker may be

revoked before the execution of the policy.43 Even in respect of

unlawful transactions, (e.g.,) betting transactions, authority to pay

money may be revoked at any time before actual payment.44 But if

the agent has made a contract with third parties so as to bind the

principal, the authority cannot be revoked.45 However, if the agent

simply appropriates a contract previously made by him with third

parties, it cannot be said that the agent has acted so as to bind the

principal in such cases, revocation is possible.46

42 Warlow v. Harrison, (1858) 120 ER 920; Day v. Welis, (1861) 54 ER 872.43 Warwick v. Slade, (1811) 170 ER 1329.44 Taylor v. Browners, (1876) 1 QBD 291; Hastelow v. Jackson, (1828) 108 ER 1026; Edgar v. Fowler, (1803) 102 ER 582.45 Hill v. Royds, (1869) 8 Eq 290; Hamilton v. Spottiswoode, (1849) 154 ER 1182.46 Lakshmichand v. Chotaram, (1900) 24 Bom. 403.

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Unless the right of revocation of proxies is expressly excluded by

the Articles of Association of a company the right would be

governed by the general law of agency.47

The principal has the right to revoke a vakalat given by his agent

whether the agency was irrevocable or not.48

47 Narayanan Chettiar v. Kaleswar Mills, AIR 1952 Mad 515.48 Mutharasu Thevar v. Mayandi Thevar, AIR 1968 Mad 333.

21

SECTION 204- REVOCATION WHERE

AUTHORITY HAS BEEN PARTLY EXERCISED

Section 204 of the Indian Contract Act reads as following:

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.

The rule in this section is connected with the principal’s duty to

indemnify the agent under Sec 222 below. ‘If a principal employs

an agent to do something which, by law, involves the agent in a

legal liability’- or even in a customary liability by reason of usage in

that class of transactions known to both agent and principal- the

principal cannot draw back and leave the agent to bear the liability

at his own expense.’49 To the extent the authority has been partly

exercised, the agent is entitled to his remuneration and to

indemnity. Thus, in Prickett v. Badger50 where an agent was

employed to sell land at a certain price, and he found a purchaser,

and the owner reused to sell and revoked the agent’s authority, the

agent was entitled for reasonable remuneration for his work and

labour upto that date.

Although the section seeks to protest ‘such acts and obligation as

arise from acts already done in an agency, the illustration indicates

that the section seeks to protect the acts done, and obligations

arising from such acts. The Law Commission recommended

amending the act to that effect.51

49 Read v. Anderson, [1881-85] All ER Rep 1104.50 (1856) 1 CBNS 29651 Thirteenth Report of the Law Commission of India 1958, para 160.

22

No revocation where authority partly exercised52- A revocation of

authority is in operative with regard to obligations already

incurred. But, where the agent continues for forbidden transactions

in spite of the revocation of his authority, the principal cannot turn

round and claim the benefit of it.53

52 Day v. Wells, (1861) 54 ER 872; Burn v. Carvalho, (1239) 41 ER 26553 Harihar Prasad v. Kesho Prasad, (1925) Pat 68.

23

SECTION 205- COMPENSATION FOR

REVOCATION BY PRINCIPAL OR

RENUNCIATION BY AGENT

Sec. 205 of the Indian Contract Act reads

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.

Premature revocation or renunciation- This section provides for

payment of compensation by principal to agent of vice versa in

cases where the agency is terminated or renounced contrary to an

express or implied contract that it should be continued for a fixed

period.54 Though the employment is for a fixed term and no right to

terminate it exists, such employment may be terminated before the

expiry of the term subject to liability to pay compensation if the

discharge was without sufficient cause.55 Where a principal without

reasonable cause terminates the agency prematurely, he refuses to

perform his part of the contract and prevents performance by the

agent. So, he will be liable in damages to the agent. Thus where the

plaintiff undertook to dispose of the shares of a company on certain

terms as to remuneration, and before he could do it, proceedings

were started for winding up, it was held that the plaintiff was

prevented from performance of his part of the contract and was

therefore entitled to compensation.56 But in the case of an agency

54 State of Kerela v. G.L.KIlkara, 1966 Ker Lj 48755 Vishnucharya v. Ramachandra, (1881) 5 Bom 253.56 Inchbold v. Western Nilgherry Coffee Co., (1864) 144 ER 293

24

for of coal for a certain period, where the principal sold away his

business before the term, the court held that there was no implied

term that the principal must carry on the business for a certain

period.57 The interest of a Commercial Agent in England is

improved and protected by virtue of Commercial Agent (Council

Directive) Regulation, 1993. Regulation 17 entitles a Commercial

Agent for compensation in the event of his agreement being

terminated prematurely by the principal. In Page v. Combined

Shipping & Trading Co. Ltd.,58 the plaintiff whose agency

agreement was terminated by the defendant company before the

stipulated period of four years was held to be entitled to

compensation for the loss of commission with proper performance

of agency contract would have earned to him.

“Sufficient Cause”- An absolute power of revocation of contract

cannot be validity reserved in favour of one of the parties.59 It is

only where the agency is terminated without sufficient cause that

the liability t opay compensation arises. In Boulton Bros. & Co. v.

New Victoria Mills Co.,60 one company as principal, appointed

another company as agent under a mistaken impression as to the

latter’s influence in commercial circles, and on discovering the

mistake, revoked the agency. It was held that there was sufficient

cause for revoking the agency. Similarly, where the agent suffers

incapacity, physical or mental,61 or where he lacks reasonable

diligence or skill or is guilty of misconduct, there will be sufficient

cause for revocation. In cases of misconduct, it is a question of fact

57 Rhodes v. Forwood, (1876) 1 AC 256.58 (1997) 3 All ER 656 (CA)59 International Oil Co. v. Indian Oil Co. Ltd., AIR 1969 Mad 423; Thathaiah M & S.M. Railway, ILR (1957) Mad 21560 (1929) 26 ALJ 111961 Cuckson v. Stones, (1858) 120 ER 902

25

whether it is so inconsistent with the fulfillment of the conditions of

service as to justify dismissal.62

62 Clouston v. Corry , (1906) AC 122; Pearce v. Foster, (1886) 17 QBD 536.

26

SECTION 206- NOTICE OF REVOCATION OR

RENUNCIATION

Sec 206 of the Indian Contract Act reads as following

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.

The section provides that if the notice of revocation or renunciation

is not reasonable, the party receiving it will be entitled to claim

compensation for the damage resulting by such notice.

The opinion of the high courts are divided as to whether the words

‘such revocation or renunciation’ occurring in this section apply

only to Sec. 205 or does it apply to every renunciation or

revocation.

One view is that the words refer to the contract mentioned in Sec.

203 and is not restricted to agencies for specified period only. In

Shaw Wallace & Co.63 it was stated:

If the phrase ‘such revocation or renunciation is to be taken

as referring back to Sec. 205, I confess that I find no meaning in

the section and it is at least arguable that what the draftsmen

meant to say is that when there is no express or implied contract

that the agency should continue for any fixed period reasonable

notice must be given of the revocation or renunciation of the

agency.

63 AIR 1931 Cal 676

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The other view is that those words refer only to the types of

contracts referred in Sec. 205;64 and that reasonable notice is

necessary where an agency is not for a fixed period.65 The Law

Commission of India recommended that this section should apply

only when there is no period of agency expressly or impliedly fixed

by the contract.66

Reasonable notice is a mandatory requirement under Sec. 206 for

termination of tenancy. When reasonable notice is a necessary sine

qua non for snapping the jural relationship of principal and agent, it

necessarily follows that renunciation of the agency without notice

would be clearly illegal.67

64 Bright Bros Pvt. Ltd. v. JK Sayani, AIR 1976 Mad 55.65 Sorabji Dhunjibhoy Medora v. Oriental Govt. Security Life Assurance Co Ltd., AIR 1944 Bom 166 (two years was reasonable).66 Thirteenth Report of the Law Commission of India 1958, para 162 recommended substituting the existing section as follows:206. Notice or revocation or renunciation where there is no fixed period or agency-Where there is no express or implied contract that the agency should be continued for any period of time, reasonable notice must be given of any revocation or renunciation of the agency by the principal or the agent, as the case may be; otherwise the damage thereby resulting to the agent or the principal, as the case may be, must be good to the one by the other.67 Popular Shoe Mart v. K Srinivasa Rao, AIR 1990 NOC 87 (AP).

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SECTION 207- REVOCATION AND

RENUNCIATION MAY BE EXPRESSED OR

IMPLIED

Sec. 207 of the Indian Contract Act reads as following

Revocation and renunciation may be expressed or may be

implied in the conduct of the principal or agent respectively.

The revocation may be made expressly, or may be implied from the

conduct of the parties. It is a question of fact in each case whether

an agency has, infact, been revoked or terminated.68

Conduct of the principal inconsistent with the continuance of the

agency will determinate the agency, viz where the principal sells off

the subject matter of agency.69 Thus, an agency for the

management of immovable property would stand terminated when

the property is transferred.70

Renunciation by an agent may be express, viz by tendering

resignation of agency;71 or may be implied, viz from ceasing to

discharge his duties, and departing from the principal’s service.72

In Re E, X v. Y73 a donor of a power of attorney gave powers to two

of his three daughters, but denying them to sell, charge or lease

any land. Later he executed a new power of attorney making all

three as attorneys, providing that any two could sign, but with no

restrictions on authority. It was held that the later document did 68 PMARm Muthiah Chettiar v. AVA Chidambaram Chetti, AIR 1918 Mad 1200.69 EP Nelson & Co. v. Rolfe, [1949]2 All ER 584 (CA)70 Sures Kanta Banerjee v. Nawab Ali Sikdar, AIR 1916 Cal 80071 Kinattikara Madhavan Nair v. MR Rly Manavikram Zamorin Maharajah Avergal, AIR 1928 Mad 90672 MSA Pl Palaniappa Chetty v. T Mr Alagappa Chetty, AIR 1916 Mad 110473 [2000] 3 All ER 1004

29

not revoke the earlier one, as it attempted only to add the third

daughter. Conduct would amount to revocation only if it was

inconsistent with the continuation of the agency; and it could only

be inconsistent if it was unambiguous in its effect.

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SECTION 208-WHEN TERMINATION OF

AGENT’S AUTHORITY TAKES EFFECT AS TO

AGENT, AND AS TO THIRD PERSON

Sec. 208 of the Indian Contract Act reads as following:

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 person, before it becomes known to

them.

Revocation when takes effect- The policy of law, apparently in

the interests of trade and commerce, is that the agent’s action

should bind the principal even though the principal might have

cancelled the agent’s authority unless the third person with whom

the agent enters into contracts knew of the termination of the

agency.74 This section merely enunciates the rule of commonsense

that revocation or termination of an agent’s authority must be

communicated to the parties concerned before it can have legal

validity. When the principal revokes the authority by giving a notice

to the agent, such agent has no right to remain in possession of the

premises of the principal after the termination of agency.75 In this

connection, reference may usually be made to Sec. 3 of the Power

of Attorney Act, which provides:

“Any person making or doing any payment or act in good faith

in pursuance of power of attorney shall not be liable in

respect of the payment or act by reason that, before the

payment or act, the donor of the power had died or become

lunatic, or of unsound mind, or bankruptcy or insolvent, or

74 Kathoom Bivi v. Arulappa Nadar, AIR 1970 Mad.76; Kulsekarapatnam Hand Match Workers’ Co-operative Cottage Industrial Society Ltd. v. Radhelal Lallolal, AIR 1971 MP 19175 Southern Roadways Ltd., Madurai v. S.M.Krishnan, AIR 1990 SC 673

31

had revoked the power, if the fact of death, lunacy,

unsoundness of mind, bankruptcy, insolvency or revocation

was not at the time of the payment or act known to the person

making or doing the same.”

AS AGAINST THIRD PARTIES

The fact that the agent is aware of the revocation of his authority

will not affect third parties who deal with him in ignorance of such

revocation. Thus payment of a debt to agent whose authority is

subsequently discovered to have been revoked is good payment so

as to support a plea of discharge as against the creditor.76 So too,

where a creditor takes acknowledgement of a debt from an agent in

ignorance of the termination of the agent’s authority, by the death

of the principal such acknowledgement will be valid as against the

debtor.77 Similarly, the registration of deed, in ignorance of the fact

of revocation of authority to register it, has been held to be valid.78

Where the defendant land owner executed GPA in respect of his

land property and subsequently revoked it, sale deed executed by

GPA holder by production certified copies of latest power of

attorney without bearing an endorsement of revocation in favour of

the plaintiff who purchased the property in bona fide belief without

the knowledge of revocation of power of attorney shall be binding

on the principal (defendant owner).79

Where after revocation of authority by the principal (land owners)

the third party was put in possession of disputed land for the money

received from him and later the principal endorsed the execution of

document by the agent in favour of the third party, the delegation

76 Narasinga v. Muthusami Naliker, (1897) 7 MLJ 21877 Ebrahim v. Chunilal, (1911) 35 Bom 30278 Maung Lu Gale v. U. Po Hlaing,(1934) Ran. 104; Ma Byaw v. Mg Tun Hlaing, (1934) Ran 341, Mohendra v. Kail Prasad, (1903) 30 Cal.26579 N.S.Srinivas v. Madduri Mallareddy, AIR 2005 AP 177.

32

of the authority of the agent cannot be questioned in the absence of

any document on record or any other means to show that the

respondent third party can be aware of the factum of revocation of

agency.80

The knowledge of the agent about the cancellation of the agency is

not binding on the third parties and the transactions entered into

by the third parties with the agent shall be binding on the principal

until it has been established that the third parties had knowledge

about the termination of agency.

But, express or actual notice of revocation is not necessary; it will

be sufficient if they somehow get knowledge of the revocation.81

80 Kashi Ram & anr v.Raj Kumar & Ors., AIR 2000 Raj. 405,40681 Dasarath v. Brojo Mohan, (1914) 18 CLJ 621.

33

SECTION 209- AGENT’S DUTY ON

TERMINATION OF AGENCY BY PRINCIPAL’S

DEATH OR INSANITY

Sec. 209 of the Indian Contract Act reads

When an agency is terminated by the principal dying or

becoming of unsound mind, the agent is bound to take, on behalf of

the representatives of his late principal, all reasonable steps for the

protection and reservation of the interest entrusted to him.

Duty to protect principal’s interest.- In case of the death or

insanity of the principal, the law casts a duty on the agent, though

the may be aware of the death or insanity, to conserve and protect

the interest entrusted to him, for and on behalf of the

representatives of the deceased principal.82 To this limited extent

the rule enunciated in the section is an exception to the general

rule that agency terminates with the death or insanity of the

principal. An illustration is afforded by a Lahore case where a

contract by an agent for the supply of molasses for the purpose of

keeping a distillery going was held, a reasonable step taken for the

preservation of the deceased, ’principal’s estate.83

82 Venkateshwar Iyer’s, The Law of Contracts-2, 10th ed., P. 655.83 Moosajee Ahmad & Co v. Adm. General, Bengal, (1921) 3 LLJ 265.

34

SECTION 210- TERMINATION OF SUB-AGENT’S

AUTHORITY

Sec. 210 of the Indian Contract Act reads

The termination of the authority of an agent causes the

termination (subject to the rules herein contained regarding the

termination of agent’s authority) of the authority of all sub-agents

appointed by him.

Where the agency terminated, the authority of all sub-agents

appointed by such agent also terminates.

The authority of the sub-agent depends only on that of the main

agency;84 and hence, if the agency is terminated, the sub-agency

also stands terminated. This does not apply to a substituted agent.

There may be cases where a substitute rather than a sub-agent has

been appointed, and there appears, by express agreement or by the

nature of the case an intention that his authority shall not be

determined when that of the original agent is revoked.85

84 Lakshmandas Khandelwal v. Raghumull, AIR 1919 PC 4985 Pollock &Mulla, MULLA Indian Contract and Specific Relief Acts- II, 13th ed., P. 211.

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CONCLUSION

Sec. 201-210 deals with the termination of agency. The principal

may revoke the real authority of his agent or

the agent may terminate his authority by renunciation or

revocation at any time. If the revoking party has previously agreed

not to do so, the revocation remains valid, but the other party may

maintain a breach of contract action against him. 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 major exception to the principal’s power of revocation occurs

when the agent possesses “authority coupled with an

interest.” Here the agent who has part ownership in

something that is to be disposed of also has power to dispose of his

principal’s remaining interest in this thing. Such a power for the

purpose of effectuating any security or of protecting or securing

any interest of the agent cannot be revoked without the

agent’s consent.

36

BIBLIOGRAPHY

1. Avtar Singh, “Law of Contract and Specific Relief”, 9th edition,

Eastern Book Company, Lucknow, 2006

2. J. Beatson, Anson’s Law Of Contract, 28th (edn)., Oxford

University Press, New Delhi, 2002

3. M.K.Nair, The Law Of Contracts, Eastern Book Company,

Lucknow, 1997

4. Pollock and Mulla, Indian Contract and Specific Relief Acts,

Vol.2, R.G.Kapadia(Ed.), 13(edn.), Lexis Nexis, New Delhi,

2006

5. T.S. Venkatesa Iyer’s, The Law of Contracts & Tenders-2, 9th

ed., S.Gogia & Company, Hyderabad.

37