“An agency is terminated by the principal remaking his authority “. Explain and illustrate the different modes of termination of agency under contract law.
Agency law is similar to contract law in that both an agency and a contact may be terminated by an act of the parties or by operation of law. “Once the relationship between the principal and the agent has ended, the agent no longer has actual authority to bind the principal. However, if the agent is terminated by an act of the parties, the principal can still be bound by the agents act if the agent has acted within the scope of is apparent authority”.
(Mohesh Chandra basuvs Radha kishore 1908, 12 c.w.n page. 28, 32)
“An agent’s authority can be terminated at any time. If the trust between the principal and agent 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. “ (http://en.wikipedia.org/wiki/Law_of_agency)
a. Who is an Agent:
Section 182 of the Contract Act, 1872, says that an “Agent” is a person employed to do any act for another or to represent another in dealings with third persons. Thus the following elements of an agent are found.
a) An agent is a person.
b) He is employed by another person.
c) The purpose of such employment will be either of the following two, i.e.,
i. to do any act for another (employer of the agent); or
ii. Representing another in dealings with third person.
(Muhammad Ekramul Haque: Law of Contract, 1872, page: 308)
b. Who is a Principal?
Section 182 also deals with the definition of principal which says that the person for whom an act is done, or who is so represented, is called “principal”. As it has been said in the definition of an agent that he is a person who does the act of another person or represents that person and the person whose act is so being done or he who is so represented by an agent is called the principal.
(Muhammad Ekramul Haque: Law of Contract, 1872, page: 309)
c. What is Agency?
The contract Act, 1872 does not give any definition of the term “agency” in clear terms’. But it may be concluded that agency is a legal device by which the above relationship i.e., the relationship of principal and agent, is created. An important feature of agency is evident in the above two definitions of agent and principal, that is,” the agent must have an authority to do any act for another person or he must have an authority to represent another and the existence of agency may be tested by examining the existence of agency may be tested by examining the existence of such authority in the hands of the agent.”
(Babulal shah v s.s mersants,asson A.I.R 1960 Bom. Page: 548)
1.4 Creation of Agency Relationship:
Generally an agency may be created by written or oral agreement or may be implied by conduct of the parties. ‘For an implied agency the law will look at the action of the parties to determine objectively if an agency exists’.
(Firmpurshottamdas vs Gulab khan 1963 .page. 407)
1.5 Who may be an Agent?
For the purpose of determining the qualifications of an agent the law lays down two principles. One permits any one to be appointed as an agent and the other requires to have certain qualifications. Section 184 deals with this particular issue.
As between the principal and third persons any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained.
(Foreman vs Great western com.1878, page: 38 l. 851)
Thus it appears that to be an agent between the principal and third person no qualification is required but to make the agent responsible to his principal that agent must have the following qualifications-
- He must attain the age of majority and
- He must be a person of sound mind
Thus the person who does not have the above two qualifications may be appointed as agent as between the principal and third person but to make that agent accountable to the principal lawfully he must have these qualifications.
(In re de souza 1932, 54 AII. Page: 558,552)
1.6 An agent’s obligation:
“A legally recognized agent has legal obligation to their principal that impose a high level of trust and responsibility on the agent.” In legal terms this is called a “fiduciary relationship” and this places certain obligation on the agent regardless of any contractual obligations that may be imposed on them. The main obligation of an agent has to act in the principal’s best interest and to act honesty.
2. Termination of agency:
The different modes of termination of agency have been described in section 201 which says-
“An agency is terminated by the principal remaking 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 reflect of involvement debtors.”
Thus it appears that an agency may be terminated in the following modes:
a) By the act of the principal if he revokes his authority.
b) By the act of the agent if he renounces the business of the agency.
c) By the completion of business of the agency.
d) By the death of principal.
e) By the death of agent.
f) If the principal becomes person of unsound mind.
g) If the agent becomes person of unsound mind.
(Mulla, the Indian contract Act 1872 page 289)
An agency relationship may be terminated by act of parties in a number of ways, including those discussed here.
2.1. (a) Lapse of Time:An agency agreement may specify the time period during which the agency relationship will exist. If so, the agency ends when that time expires. If not definite time is stated, then the agency continues for a reasonable time and can be terminated at will by either party. What constitutes a reasonable time depends on the circumstances and the nature of the agency relationship.
(Per mukerjee j.in lalijee vsDadabai 1916, 23 cal. Page: 190.191)
2.1. (b) Purpose Achieved: An agent can be employed to accomplish a particular objective, such as the purchase of stock for a cattle rancher. In that situation, the agency automatically ends after the cattle have been purchased. If more than one agent is employed to accomplish the same purpose, such as the sale of real estate, the first agent to complete the sale automatically terminates the agency relationship for all the others.
(Blackburn vs schools 1810, 2 camp .page: 343)
2.1. (c) Occurrence of a Specific Event: An agency can be created to terminate on the happening of a certain event.
2.1. (d) Mutual Agreement: Recall from basic contract law that parties can rescind (cancel) a contract by mutually agreeing to terminate the contractual relationship. The same holds true in agency law, regardless of whether the agency contract is in writing or whether it is for a specific duration. Agreement to terminate effectively relieves each of the rights, duties, and powers inherent in the relationship.
2.1. (e) Termination by One Party: As a general rule, either party can terminate the agency relationship. The agent’s act is said to be renunciation of authority. “The principal’s act is a revocation of authority. Although both parties may have the power to terminate because agency is consensual relationship, and thus neither party can be compelled to continue in the relationship they may not possess the right to terminate and may therefore be liable for breach of contract.”
2.1. (f) Wrongful Termination: Wrongful termination can subject the canceling party to a suit for damages. Even in an agency at will (that is, an agency that either party may terminate at any time), the principal who wishes to terminate must give the agent reasonable notice that is, at least sufficient notice to allow the agent to recoup his or her expenses and, in some situations, to make a normal profit.
2.2 Agency Coupled with an Interest. A special rule applies in an agency coupled with an interest. This type of agency is not an agency in the usual sense because it is created for the agent’s benefit instead of for the principal’s benefit. “An agency coupled with an interest should not be confused with a situation in which the agent merely derives proceeds or profits from the sale of the subject matter”. For example, an agent who merely receives a commission from the sale of real property does not have a beneficial interest in the property itself. These agency relationships are revocable by the principal, subject to any express contractual arrangements between the principal and the agent.
(Alliance bank simla ltd vs Amritsar bank 1915, pun. page: .322)
2.3 Notice of Termination. When an agency has been terminated by act of the parties, it is the principal’s duty to inform any third parties who know of the existence of the agency that is has been terminated (although notice of the termination may be given by others.)
2.4 Agent’s Authority Continues until Notified. An agent’s authority continues until the agent receives some notice of termination. As previously mentioned, notice to third parties follows the general rule that an agent’s apparent authority continues until the third party receives notice (from any source of information) that the authority has been terminated. The principal is expected to notify directly any third party who the principal knows has dealt with the agent. For third parties who have heard about the agency but have not dealt with the agent, constructive notice is sufficient.
(Mujid un nessa vs Abdur rahim 1900.page 23)
2.5 Form of Noice. No particular form is required for notice of termination of the principal-agent relationship to be effective. The principal can actually notify the agent, or the agent can learn of the termination through some other means. “If the agent’s authority is written, it must be revoked in writing, and the writing must be shown to all people who saw the original writing that established the agency relationship.” Sometimes, a written authorization (such as a power of attorney) contains an expiration date. If the authorization has expired that will be sufficient notice of termination.
- Termination of Relationship without knowledge of the agent:
The relation of principal and agent can be terminated:
i. by the act or agreement of the parties to the agency or
ii. by operation of law.
An agency when shown to have existed will be presumed to have continued. In the absence of anything to show its termination unless such a length of time has elapsed as destroys the presumption.
(Merchant vs Foreman 182 .kann. page 550,555, kann 1958)
3.1 Termination of agency by act of parties:
After the expiration of the time specified in the contract the agency contract automatically dissolved. But before that period if the principal terminate the contract without giving notice to the agent and continue their relationship as principal and agent, a rebuttable presumption is raised that their relations are governed by the original contract and that she contract is renewed for a similar period.
(Cinefot international corp. vs Hudson photographic industries 13 n.y.2d. page 249,252 n.y.1963)
An agency cannot be terminated at will during certain specific instances but if terminated by the principal without giving notice to the agent and the agent containing his act in good faith as an agent, in such case the act of the agent binds the principal.
According to Madras High Court…….
No Notice is required to be given when agency is not for a fixed duration. So where there is no express or implied contract that the agency should be continued for any specified period the principal is entitled to terminate agency without any obligation to give a reasonable notice though relation between a principal and an agent is entirely contractual one.
(Bright bros p ltd vs J.K. Soyani Air 1976 mad. page 55)
3.2 Termination of agency by operation of law:
“In addition an agency may be terminated by operation of law. The death of the principal operates as an immediate and absolute revocation of the agent’s authority”
Reading the termination of agency upon the death of the principal two views are prevailing:
Ø According to one view- unless the agency is one coupled with an interest, it will terminate on the death of the principal. Notwithstanding the fact that the agent and third person are ignorant of the fact.
Ø Another view is that if the agent dealing with the agency acts in good faith and in ignorance of the principal death, in such a case the principal’s estate may be bound where the act to be done is not required to be done in the name of the principal. (Venkatachalam v. Narayannan (1916) 39 Mad. 376, page 378-379.)
The agent’s duty to act on behalf of the principal, who comes to an end on the termination of agency, can be stipulated by a particular statute or instrument. In such a case if the instrument specifies in plain and unambiguous terms that an agency will terminate without action on the part of the principal and the agent continues to carry on his duties the duties of the agent will in fact valid.
(Tabor Vs. mason Dixon lines, inc. 196 tenn 198 (Tenn 1953))
An agency created by an ordinary power of attorney for the management of an endowment and subsequently revoke by the principal without notice to the agent May not render the act invalid of the agent if such act is made for the spirituals benefit of the person creating the endowment and the members of his family, because such spiritual benefit cannot amount to an interest.
(121 598; 1930 Mad; IR 231 Mad page 214)
4. Determining the scope of liability:
For the principal to be liable, the agent who has been dismissed by the principal without giving notice, acting as an agent in good faith, must have done such act for the benefit of the principal.
(Agnew v. Indian Carrying Co. (1865) 2 M.H.C. page 449.)
Some matters keep in mind for determining the scope of liable:
- Whether the agents act was authorized by the principal.
- The time, place and purpose of the act,
- Whether the act was one commonly performed by agent on behalf of his principal,
(Narayan Dew v. Hanumantha (1950) Cut. 174, (’50) A. Orissa page 241.)
- The extent to which the principal’s interest was advanced by the act,
- The extent to which the private interest of the agent was involved.
(Pannalal Jankidas v. Mohanlal (’51) A.S.C. page 144.)
The relation between a principal and an agent is entirely a contractual one. The principal cannot terminate the agency without giving notice to the agent except for sufficient cause. If he does so he is liable to compensate the agent for the loss caused to him thereby. The Termination does not take effect as regards the agent, till it becomes known to him. But in certain situation, if it is not possible to give notice to the agent about his termination but the agent continues his act in good faith and for the benefit of the principal such act may not render invalid though it has been done after the recession of contract.
1. D.L.R. The Contract Act, Dhaka, 2002.
2. Muhammad Ekramul Haque: Law of Contract, Published by Law Lyceum, First Edition, December 2004.
3. J.Beatson, Anson’s Law of Contract, 28th Edition, Oxford University Press, 2002.
4. M.P. Furmston: Chehire, Fifoot and Eurmston’s Law of Contract, Butterworths, London, 2002.
5. P.S. Atiyah: An Introduction to the Law of Contract, Clarendon Press, Oxford, 6th Edition, 2004.
6. J. Poole: Textbook on Contract Law, Oxford University Press, 6th Edition, 2001.
7. Ewan Mckendrick Contract Law, Text, Cases and Materials, Oxford University Press, 2003.
8. H.S. Pathak: Mulla on the Indian Contract Act, Tripathi, Bombay, 1990.
9. A.G. Mitra; Law of Contract.
10. Shawkat Mahmood: The Contract Act, Lahore, 1981.
 Mohesh Chandra basuvs Radha kishore 1908,12 c.w.n, page: 28 ,32
 Firmpurshottamdas vs Gulab khan 1963 .page. 407
 Foreman vs Great western com.1878 ,page: 38 l. 851