Termination of Agency under Indian Contract Act

Introduction

Termination of agency refers to the end of the relationship between the principal and the agent. The Indian Contract Act, 1872 provides various modes through which an agency may come to an end. Understanding these rules is important to determine rights, duties, and liabilities after termination.

Meaning / Definition

Termination of agency means the ending of authority of the agent to act on behalf of the principal. Once terminated, the agent can no longer bind the principal in dealings with third parties.

Modes or Types

By Act of Parties

Revocation by Principal

The principal may revoke the authority of the agent (Sec. 201).

• Can be express (clearly stated) or implied (by conduct)
• Can be done before authority is exercised (Sec. 203)
• If partly exercised, revocation is limited (Sec. 204)
• Compensation required for premature revocation without valid reason (Sec. 205)
• Reasonable notice must be given (Sec. 206)

Renunciation by Agent

The agent may refuse to continue the agency.

• Must give reasonable notice
• Otherwise, liable to compensate the principal

By Mutual Agreement / Completion of Business

• Agency ends when the purpose is completed
• Also ends by agreement between parties

By Operation of Law

Expiry of Time

• Agency ends when the fixed time expires (Sec. 208)

Death or Insanity

• Death or unsound mind of principal or agent terminates agency (Sec. 209)

Insolvency of Principal

• Agency terminates when the principal becomes insolvent
• Agent cannot bind the principal thereafter

Destruction of Subject Matter

• If the subject matter is destroyed, agency ends

Becoming Unlawful

• If the object becomes illegal due to change in law, agency terminates

Dissolution of Company

• Agency ends if the principal (company) is dissolved

Alien Enemy

• If principal and agent become enemies due to war, agency ends

Termination of Sub-Agent

• Termination of agent’s authority automatically terminates sub-agent’s authority (Sec. 210)

Joint Agents

• Death of one joint agent terminates agency only for that agent

Exceptions

Irrevocable Agency (Sec. 202)

Agency cannot be terminated when:

• Agent has interest in the subject matter (agency coupled with interest)
• Authority partly exercised
• Agent has incurred personal liability

Time when Termination Takes Effect

• As regards agent: when he comes to know
• As regards third party: when they receive notice

Practical Example

A appoints B as an agent to sell goods within 6 months. After 3 months, A revokes the authority without valid reason. B can claim compensation for premature termination. If B had already partly completed the sale, the revocation cannot affect that part.

Summary

• Agency can be terminated by act of parties or by operation of law
• Principal can revoke and agent can renounce authority
• Completion of purpose or expiry of time ends agency
• Death, insanity, insolvency or illegality terminates agency
• Reasonable notice is required for revocation
• Irrevocable agency exists where agent has interest
• Termination is effective only after communication
• Sub-agent’s authority ends with agent’s authority