RESEARCH PROJECT

on
Modes of termination of agency: a critical legal study

Submitted to
MAHARASHTRA NATIONAL LAW UNIVERSITY,
AURANGABAD

Submitted by

Krishna Sharma
BA.LL.B. (Hons.)

Semester-3
Roll No. 2022/BALLB/58
Paper: General Principles of Contract and Law of Specific
Relief

Under the guidance of

Ms. Tanaya Tarai
Associate Professor of Law

Maharashtra National Law University, Aurangabad

September 2023
DECLARATION
I hereby declare that the project entitled is an outcome of my own
efforts under the guidance of Ms. Tanaya Tarai the project is
submitted to Maharashtra National Law University, Aurangabad.
For the Partial Fulfilment of B.A.LL.B. (Hons.) examination
semester-3 2023. I also declare that the project has not been
previously submitted to any other university.
Date: 26/9/23
Declared by: Krishna Sharma
Roll no: 2022/BALLB/58
Place: MNLU, Aurangabad
CONTENT

INTRODUCTION ..................................................................................................................... 4
TYPES OF AGENCY RELATIONSHIPS ................................................................................ 4
TERMINATION OF AGENCY ............................................................................................................. 5
MODES OF TERMINATING AGENCY .............................................................................................. 6
CASE LAW ANALYSIS ..................................................................................................................... 10
CONCLUSION ..................................................................................................................................... 11
 Introduction
When a person appoints another to act on his behalf with a third party, it is
known as "agency" in a contract of agency. The aforementioned Act's Section
183 stipulates that the principal must be able to enter into contracts. Agents can
be anyone (Section 184). In accordance with Section 185, consideration is not
required in the agency contract.
The legal connection between the principal and agent is terminated at
termination of agency. The provisions relating to the termination of Agency are
outlined in Sections 201 to 210 of the Indian Contract Act of 1872.
The Indian Contract Act, 1872 defines an agency agreement as "a contract by
which a person employs another person to do any act for himself or to represent
him dealing with a third person."
The person being represented is referred to as the "principal," while the hired
representative is referred to as an "agent." Anybody who is at least 18 years old
may hire an agency. A contract of agency can be made without any
consideration being required.
Section 182 of the Indian Contract Act of 1872 defines an agent and a principal.
According to which, a person employed to perform any act for another or to
represent another in relations with a third party is referred to as an agent. The
term "principal" refers to the person for whom such an act is performed or who
is so represented.'
An agency has 2 types of contracts:
1. An agreement between the agent and principal from which the agent has the right
to act on behalf of the agent.
2. A contract between a third party and the principal due to an agent.
The principal has the right to revoke an agent's authority at any moment during
the day. It is risky for the principal to permit the agent to continue transactions
if throughout the term of the contract the trust between the agent and the
principle is broken.

Types of Agency Relationships

In order to put the principal into a legal relationship with the third party, an agent
and principal must have an agency relationship.
Agent and principal are defined in Section 182 of the Indian Contract Act of
1872 as follows: "An agent is a person employed to perform any act for another
or to represent another in interactions with third parties.
Agent: A person who, under the control of the principal, agrees to take action
on behalf of him or her principal is known as agent.1

1
Avtar singh Indian contract act.
 Principal-Agent Relationship
A contract will frequently contain formal definitions of the principal-agent
relationship. For instance, when a shareholder purchases shares of an index
fund, the fund management acts as both the principal and the shareholder's
agent. The assets of numerous principals make up the assets of the index fund,
which must be managed by the index fund manager as an agent in line with the
prospectus to optimize returns for a certain degree of risk.
Any willing and able parties may get into a principal-agent relationship for any
lawful transaction. In straightforward situations, the relationship's principle is a
single person who appoints an agent to complete a task; however, other
relationships falling under this guise feature a principal who is a company,
nonprofit organization, governmental body, or partnership.
The agent is typically a person who is able to comprehend and eventually
complete the work provided by the principal. The principal-agent relationship is
sometimes shown by engaging a carpenter to fix a house, employing an attorney
to handle legal matters, or asking an investing advisor to diversify a stock
portfolio. In each case, the person seeking the professional's help or advice is
the principal, and the person providing the service is the agent.

TERMINATION OF AGENCY
Section 201 of the Indian Contract Act provides for the termination of an
agency. It states that "an agency is terminated by the principal revoking his
authority, 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
insolvents."2
Since the agency contract is a component of general contracts, all but
irreversible contracts can be ended as normal contracts. If the contract was
written in such a way that it was time-bound, the agent's role ends when the
contract is terminated. However, if the parties continue to maintain a contract of
principal and agent, it is assumed that the principal and agent are acting in
accordance with the stipulations of the previous contract and the contract is
renewed for a similar period of time. If the contract specifies that it is to be
stipulated by time, then the contract will be terminated.
The contract is said to be terminated after a particular amount of time has passed
if there are no time restrictions. a acceptable time period might rely on many
different things, including the principal, the agent, the authority in place, etc.
Either the principal or the agent must bear the burden of proof when claiming
that a contract has been terminated. Parol evidence, which safeguards the

2
The Indian Contract Act, 1872, s.201
 integrity of the contract, is not admissible in court when it comes to proving the
duration of an express contract where it is either unambiguous, integrated, or in
some circumstances both unambiguous and integrated.
The contract of agency can only be terminated after an adequate amount of time
is given to the other party.

MODES OF TERMINATING AGENCY3

There are 4 types of ways in which we can terminate the agency which are as
follows.

Termination by the act of parties

By the performance of an agent in this case, the agency is terminated when the
agent completes the specific task or purpose for which the agent was hired. Once
the task is accomplished the agency will automatically terminate.
REVOCATION BY THE PRINCIPAL
The principle has the right to cancel the power of any agency or agent at any
moment. If adequate notice is given and it is carried out by the principal in a
reasonable way, it may at any time. When the contract is revoked, all obligations
owed to the agency must be paid in full without any ulterior motives. The agency
or agent may file a lawsuit against the principal for breach of contract if the
contract is terminated in a manner that is contrary to its terms. The principal is
still bound by the agreement they made with the third party even after the
contract is revoked. The principal is obligated to bore this burden. Any time an
agent's authority is revoked, the third part must be notified right away.
Explanation: A empowers B to let A's house. Afterwards A lets it himself. This
is an implied revocation of B's authority.
Case law:
in Rhodes v Forwood4 it was held that where the owner of a colliery 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."
In TCB Ltd v Gray5 An agent was appointed by a shirt manufacturer as a
canvasser and traveller for five-year period to sell such goods as may be
forwarded to him. The principal's factory was burned down by a chance fire
while there were still three years for the agency to go. The principal never
resumed business and ended the agency. He was held liable in damages as the
agency seemed to have been created for a definite term.

3
https://www.srdlawnotes.com/2018/06/termination-of-agency-contract-of-agency.html
4
Rhodes v Forwood, (1876) LR 1 AC 256 (HL)
5
1987 Ch 458 (CA)
 In Union of India and Ors vs Smt. V.P. Parukutty6. In this respondent
Declaration of Government policy that agencies for National Savings
Certificates should not be given to relatives of employees was held to be not a
good ground for termination of existing agencies
RENUNCIATION BY AN AGENT
Like the principal, an agent has the option to abandon the agreement. In
accordance with section 206 of the Indian Contract Act, the agent is also
required to give the principal a reasonable amount of notice of the intention to
renounce the contract. If the agent fails to do so, the agent may be held liable
for any harm the principle suffers as a result of the short notice. By declining to
act on behalf of the principle, the agent might also give notice to the latter that
he intends to renounce his authority. The agent is responsible to the principal
for the losses and damages suffered by the principle if the agreement is
terminated unilaterally by the agent before the principal's promise is fulfilled.
Explanation: A empowers B to let y A's house. Afterwards A lets it himself.
This is an implied revocation of B's authority.
Case laws:
Amrik Singh v Sohan Singh7 An example of implied revocation was found in
a case in which a father, after executing a power of attorney in favour of his son,
fell into strained relations with him so that the son became an adversary and
was, therefore, no more capable of acting as an agent.'
Deb Ratan Biswas v Anand Moyi Devi8 Execution of power of attorney does
not denude the principal of his power to act independently of the attorney. The
principal is not required to take attorney's consent for so acting. He was not
bound to consult his attorney before signing a compromise petition. Such act on
the part of the principal was held to have operated as an implied revocation of
the power of attorney.
BY AN AGREEMENT
The principal and agent must agree to end the agency agreement for it to be
effective. Either an inferred or an express action can be taken. The authority of
the agent is terminated when the agreement between the principal and the agent
is finalized because the agency is terminated owing to an agreement that is made
jointly at any stage.
BY NOTICE
This sort of contract has a written termination clause that specifies that it will
end when the agreed-upon duration has passed. If there is no time-bound clause,

6
(1997) 2 see 252: AIR 1997 SC 1903
7
(1988-91) 93 PLR 541.
8
AIR 2011 SC 1653.
 the agency contract is ended by giving a reasonable amount of time's notice to
withdraw it, just like any other contract.

Termination by operation of law9

BY AN AGREEMENT
Due to the agent's completion of the work assigned to him or her, the agency is
terminated. The agency agreement comes to an end when all of the terms have
been fulfilled, the time limit has passed, or both parties choose to terminate the
arrangement.
DEATH OR INSANITY OF PRINCIPAL OR AN AGENT
Section 209 of the Indian Contract Act of 1872 states that an agent may dissolve
the agency upon the death of the principal. The agency contract automatically
expires if either the agent or the principal dies because neither can be contacted
if they are no longer alive. An unsound person is not permitted to enter into a
contract; hence the agency is also terminated if either the agent or the principal
is.
Case laws:
Girshan Industrial Co Ltd v Interchem CorpnJ10 "An attorney is merely an
agent of the principal and what he does, he does for the principal. So long as the
principal is alive, any act done by the attorney or his counsel is valid and
continues to be valid irrespective of the fact whether the attorney is alive or
dead. But the counsel for the attorney cannot act if the principal is dead." A
reading of Section 201 makes it clear that on the death of an agent his agency
comes to an end but it does not obliterate acts done by the agent on behalf of the
principal during the tenure of his agency”.
Mujibunnissa v Abdul Rahim11 Where a principal authorised his power of
attorney to present a document disposing of his property for registration, but the
principal died before the agent could do so, a subsequent registration was held
to be invalid. In this case the Registrar also knew that the principal was dead.
THE PRINCIPAL BEING INSOLVENT
According to section 201 of the Indian Contract Act, 1872, a person who is
insolvent is prohibited from entering into contracts since their liabilities
outweigh their assets. Due to a lack of the required assets, the bankrupt cannot
enter into a contract.
Case laws: Ernest Charles Elliott v William Turquand12 An agency ends on
the principal being adjudicated insolvent. insolvency of an agent would also
have the same effect if it makes him unfit to perform his duties

9
https://lawbhoomi.com/termination-of-agency-under-indian-contract-act-1872/
10
1970 Curr LJ 387.
11
(1900-01) 28 lA 15: (1901-03) 23 All 233
12
(1881) LR7AC 79;
 THE PRINCIPAL IS AN ALIEN ENEMY
The contract is instantly dissolved if a war breaks out between the principal's or
agent's countries. If the principal is an adversary of the United States at any time
during the length of the agreement, the agreement is automatically cancelled.
DISSOLUTION OF COMPANY OR FIRM
In some circumstances, the business may be regarded as the primary in an
agency agreement, and if it is dissolved, the agreement terminates. The contract
expires if the company, whether it be the principal or agent, is dissolved.
AN EVENT RENDERS THE AGENCY UNLAWFUL
The previously legal agency may be deemed unlawful as a result of an action by
either the principal or the agent, rendering it impossible for the agency to
continue and terminating the agency contract. Wartime also presents a
possibility.
BY THE EXPIRY OF TIME.
"Where an agent has been appointed for a fixed term, the agency ends upon the
expiration of the term, whether or not the agency's purpose has been achieved."
An organization terminates automatically when
the end of its term. It was decided that the agent was required to leave the
premises at the end of the agreed-upon time period when the agency was to
operate a gas station. Both a renewal clause and a renewal itself were absent.13
Case laws:
P. Sukhadevv Commr of Endowments14 it was held that an agency comes to
an automatic end on the expiry of its term. Where the agency was to run a petrol
pump for a specified period, it was held that the agent was bound to vacate the
premises on expiry of the period. There was no renewal clause, nor in fact there
was any renewal.
Lalljee Mahommad vDadabhaiJivanji Guzadar15 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."

13
The Indian Contract Act, 1872, s.182.
14
(1998) 1 BC403 (AP)
15
AIR 1916 Cal964.
 CASE LAW ANALYSIS
1. R. Sayani v. Bright Bros (P) Ltd16 When a company is established for a
specific period of time, the obligation for a premature termination that was not
justified must be paid. The department made a hasty judgment without giving
the required forewarning. Each month, the agent was paid Rs. 4,000. The court
felt that at least three months should have passed after the warning. A prize of
Rs. 12,000 was permitted in contrast.

2. Carter v. White17 A principle granted his agent the funds in exchange for the
right to fill the agreed-upon exchange bill with the name of the drawer. Before
the measure could be completed, the principal passed away. His ability to enter
the drawer's name was still regarded active.

3. Sukhdev V. Command of the Command18 An agency ends automatically

upon the termination of the name. It was expected that the agent was required
to leave the property at the end of the period where gas pumps were to be
regulated by the agency for a set amount of time. There was neither an extension
clause nor a real renewal clause.
4. Truman v. Lauder19 Here, A was acting as B's agent. Until B notifies the world
that A's authority has been removed and that it makes sense, all parties with
whom A has entered into a contract in that undertaking have the right to hold B
responsible. Here, the issue was whether the agent intended to keep the contract
on his account in a certain circumstance. The court rejected the argument that it
was wrong to demand that the principle notify everyone that he had terminated
his agent's power of attorney and that he shouldn't be required to get in touch
with someone like Will with whom an agent was willing to interact.

16
AIR 1980 Mad 162
17
(1883) 2d 666: (1881–85) All ER Rape 921
18
(1998) 1 BC 403 (AP)
19
(1840) 11 AD and L589
CONCLUSION
We can draw the conclusion that the contract of agency is a fascinating feature
of contract law. It demonstrates that an agency may be dissolved for a variety of
reasons and in a variety of ways. It describes the relationship between the
principal and the agent, and it explains that the fundamental and most significant
reason for the termination of an agency agreement is when there is no longer
mutual trust between the parties. If there is no trust, business cannot be
conducted, and the agency is shut down.
We can conclude by saying that agreements establishing agency relationships
are a typical occurrence in corporate law. They could be explicit or imply. When
someone transfers control to another person, such as by appointing them to carry
out a specific task or dividing up their work into groups, an agency is created.
By creating a principal-agent relationship, both parties' rights and obligations
are acknowledged. There are several types of relationships like this: insurance,
advertising, travel, factor, broker, agent, etc. There are several ways to end an
agency.