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Classes at I.G.P 184

Chapter-15

Agency

LIST OF SECTIONS TO BE DISCUSSED IN THIS CHAPTER

15.1 Meaning of Agent Principal and Agency Section 182

Meaning of agent

Section 182 An agent is a person employed –

to do any act for another. or

to represent another in dealing with third parties.

Meaning of principal

Section 182 The person for whom -:

such act is done, or

who is so represented is called the principal.

Meaning of Agency The term agency denotes a relationship between two persons wherein one is

called a ‘principal’ and the other an ‘agent’.

SECTION NUMBER SECTION NAME

182 MEANING OF AGENT AND PRINCIPAL

183 PRINCIPAL SHOULD BE COMPETENT TO CONTRACT

184 AGENT MAY NOT BE COMPETENT TO CONTRACT

185 NO CONSIDERATION IS NECESSARY TO CREATE AN AGENCY

186 AGENT’S AUTHORITY MAY BE EXPRESSED OR IMPLIED

187,188&189 EXTENT OF AGENT AUTHORITY

190 DELEGATION OF AUTHORITY

191,192&193 SUB AGENT

196-200 AGENCY BY RATIFICATION

201 TERMINATION OF AGENCY

202 IRREVOCABLE AGENCY

203 TERMINATION OF AGENCY

204 IRREVOCABLE AGENCY

211 DUTY TO FOLLOW PRINCIPAL’S INSTRUCTION AND THE CUSTOM

212 DUTY TO EXERCISE REASONABLE DILIGENCE AND SKILL

213 DUTY TO MAINTAIN BUSINESS SECRETS OF PRINCIPAL

214 DUTY TO COMMUNICATE

215 DUTY NOT TO DEAL ON HIS OWN ACCOUNT

216 DUTY NOT TO MAKE SECRET PROFIT

217&218 DUTY TO REMIT PRINCIPAL’S MONEY

219&220 RIGHT TO RECEIVE REMUNERATION

221 RIGHT OF LIEN

222 RIGHT OF INDEMNITY

223 RIGHT OF INDEMNITY FOR THE ACTS DONE IN GOOD FAITH

225 RIGHT OF COMPENSATION

227&228 PRINCIPAL’S LIABILITY FOR ACTS OF AGENTS

231&233 UNDISCLOSED PRINCIPAL

235&236 PRETENDED AGENT

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15.2 Some Features of a Contract of Agency Section 183 to 185

The principal should

be competent to

contract (Section 183)

According to Section 183 “any person who is of the age of majority according to

the law to which he is subject and who is of sound mind, may employ an

agent”.

From the above Section, it can be concluded that persons who are competent to

contract can only be principals.

The agent may not be

competent to contract

(Section 184)

According to Section 184 ”As between the principal & a third person, 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”.

In simple words, any person may become an agent even a minor or a person of

unsound mind can become an agent. However, if the agent is a minor or a

person of unsound mind he is not liable to the principal.

No consideration is

necessary to create an

agency (Section 185)

Section 185 provides that no consideration is necessary to create an agency.

PAST ATTEMPT

QUESTIONS

Q1. A minor cannot be appointed as an agent [CA PCC NOV. 2007]

Q2. No consideration is necessary to create an Agency. [CA IPCC NOV. 2010]

Q3. Agency cannot be created without consideration. [CA Inter.(IPC) NOV. 2013]

15.3 General Rules of Agency

Whatever a person can do personally he can do through an agent, except for acts involving personal skill

and qualifications

He who does through another does by himself -:

In other words the acts of the agent are for all legal purposes the acts of the principal.

Section 226 provides to the some effect “contracts entered into through an agent and obligations arising

from acts done by an agent, may be enforced in the same manner, and will have the same legal

consequences, as if the contracts had been entered into and the acts done by the principal in person. The main evidence to show the presence of agency between two persons would be the representative

position of the person working for the other

Q1. R is the wife of P. She purchased some sarees on Credit from Q. Q demanded the amount from P. P Refused. Q

filed a suit against P for the said amount. Decide in the light of provisions of the Indian Contract Act, 1872,

whether Q would succeed? [CA PE II MAY 2008]

Q2. W is the wife of H, who is Lunatic, purchases a diamond set of Rs.10 lacs from Beauty Jeweller on credit. Referring

to the provisions of the Indian Contract Act,1872, decide whether the Beauty Jeweller is entitled to claim the

above amount from the property of H. [CA PE II JUNE 2009]

Q3. K is the wife of A. She purchased a saree on credit from B.B demanded the amount from A. A refused to make the

payment. B filed a suit against A for the same amount. Decide in the light of provisions of the Indian Contract

Act, 1872 whether B would succeed. [CA Inter.(IPC) MAY 2013]

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15.4 Modes of Creation of Agency Section 186,187,196,200,237

An agency relationship can emerge between two persons in several ways as explained below.

Agency by express agreement or express agency.

Agency implied from circumstances or implied agency.

Agency by operation of law.

Agency by ratification.

Agency by Express

Agreement

Section

Agency relationship may be created by an express agreement between the

agent & the principal.

Under, express agreement agent may be appointed either by words of mouth

or by an agreement in writing.

Agency implied from circumstances

Agency by estoppel

Section 237

An agency may emerge by the application of the doctrine of estoppel.

This doctrine in the present context would mean that when a person has led

another person to believe by his words or conduct that a certain person is

his agent, then he is precluded or stopped from denying the truth of this fact

even if it is wrong and he is bound by the acts of the agent.

Agency by holding

out

To hold out means to present or to show up.

Agency by holding out means creation of agency by presenting a person as

agent without actual words to that effect.

Agency by

necessity

In certain circumstances the law provides an authority on one person to act as

agent for another without any regard to the consent of the principal. Such an

agency is called an agency of necessity.

Thus, the conditions which enable a person to act as an agent of necessity of

another are as follows:

There should be a real necessity for acting on behalf of the principal.

If should be impossible to communicate with the principal within the

time available.

The agent should act bonafide in the interests of the principal.

Agency by

operation of law

Sometimes an agency arises by operation of law.

Agency by Ratification - : Sec 196 -200

Meaning of agency

by ratification

Ratification means the subsequent adoption and acceptance of an act

originally done without instruction or authority.

Thus, where a principal affirms or adopts the unauthorized act of his agent, he

is said to have ratified that act and there comes into existence an agency by

ratification retrospectively.

Ratification

tantamount to prior

authority

Ratification has got retrospective effect. By ratifying the unauthorized act of the

agent the principal becomes bound by the act as if it had been originally done by

his authority. Thus ratification tantamounts to prior authority. It relates back to the

original making of the contract.

Essentials of a valid ratification:- A valid ratification must fulfill the following conditions

Prinicipal must be

indentifiable

The agent must expressly contract as an agent for a principal in the knowledge

of third parties.

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The principal must be named or must be identifiable and it is not sufficient to

indicate simply that he is acting as agent of some one.

Existence of

principal

Ratification shall be valid only if the principal doing it was in existence at the

time when the act was done and the date of ratification.

Competence of

principal

The principal must have contractual capacity both at the time of the contract and

at the time of ratification.

Full knowledge of

Facts

Ratification should be based on knowledge of all relevant facts.If the agent

conceals from the principal some vital information while seeking ratification,

such ratification by the principal shall not bind him.

Ratification must be

within a reasonable

time

Ratification must be done within a reasonable time, of the act to be ratified.

The act to be ratified

must be lawful

The act to be ratified must be a lawful one.

The whole

transaction can be

ratified

There can be ratification of an act in total.

The principal cannot ratify a part of the transaction which is beneficial to him and

reject the rest.

Ratification must not

injure a third person

Section 200

Ratification cannot be effective when its effect is to subject a third person to

damages or terminate any right or interest of a third person.

Ratification can be of

the acts which the

principal had the

power to do

The acts which the principal is incapable of doing cannot be ratified.

PAST ATTEMPT

QUESTIONS

Q1. What do you understand by "Agency by Ratification"? What is the effect of ratification?

Point out any four elements of a valid ratification. [CA PE II NOV. 2003]

Q2. “The relationship of principal and agent (i.e. Agency) may be constituted by

subsequent ratification by the principal.” Examine the validity of the statement and

state the requisites of a valid ratification in the light of the provisions of the Indian

Contract Act, 1872. [CA PE II NOV. 2006]

Q3. R of New Delhi sends his agent M to purchase certain goods from Global Enterprise,

Mumbai on credit for him. Later on R pays the amount for the goods purchased. On

another occasion, he again sends M to purchase goods but this time pays sufficient

cash to M for the purpose. M, However again purchases the goods from Global

Enterprises but on credit and soon thereafter he dies. Global Enterprise files a suit

against R for recovery of the said amount. Decide whether Global Enterprise would be

given any relief by the Court under the provisions of the Indian Contract act, 1872.

[CA PE II JUNE 2009]

Q4. An agreement entered into with a minor may be ratified on his attaining majority.

[CA PCC JUNE 2009]

Q5. State with reasons whether there can be an agency by ratification in the following

cases:

(i) M, without authority, buys goods for N, afterwards N sells them to X on his

own account.

(ii) X buys 20 bags of rice for himself and 20 bags for his friend Y. X informs Y of

his act. The trader delivers the bags at Y’s house. Y consumes the rice.

(iii) X, without Y’s authority, lends Y’s money to Z. Afterwards; Y accepts

interest on the money from Z.

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(iv) A newly formed compnay adopts an act done i its name before its

incorporation.

Q6. X holds a lease from Y, terminable on three months notice. Z, an unauthorized person,

gives a notice of termination to X. Subsequently, Y ratifies the notice given by Z.

[CA PE II NOV. 2009]

Q7. Ratification of agency is valid even if knowledge of the principal is materially

defective. [CA IPCC MAY 2010]

Q8. A without B’s authority let outs B’s flat to C. Afterwards B accepts rent of the flat from

C. It is an agency by :

1. Holding out

2. Estoppel

3. Ratification

4. Necessity [CA IPCC MAY 2010]

Q9. An agreement with a minor may be ratified on his attaining majority.

[CA IPCC MAY 2011]

Q10. A minor on his attaining majority can validate any agreement which was entered into

when he was minor and which was void. [CA Inter.(IPC) MAY 2014]

15.5 Extent of Agent’s Authority Section 187,189

The authority of an agent means his capacity to bind the principal to third parties. The agent can bind

the principal only if he acts within the scope of his authority.

An agent’s authority may be classified as actual or real, ostensible or apparent and authority in

emergency.

Actual Authority or

Real Authority

This is the authority that the principal has actually delegated to the agent. This

will include the task expressly or impliedly entrusted to the agent.

The authority is said to be express when it is given by words spoken or

written.

The authority is said to be implied when it is inferred from the circumstances

of the case or the ordinary course of dealings (Section 187).

Ostensible Or

Apparent Authority

Ostensible authority means an authority which the third parties dealing with

the agent can presume to be with the agent in relation to a particular business

ordinarily.

An agent can also bind the principal to third parties by acts done within his

apparent authority, provided the third party acts bonafide.

Authority in

Emergency Section

189

An agent has authority in an emergency; to do all such acts for the purpose of

protecting his principal from loss as would be done by a person of ordinary

prudence in his own case, under similar circumstances.

15.6 Kinds of Agent :- Various Types of agent can be studied as follow

General Agent A general agent is one who is employed to do all acts connected with a

particular business or employment, e.g. a manager of a firm.

Universal Agent A universal agent is said to be one whose authority is unlimited i.e. who is

authorized to do all the acts which the principal can lawfully do and can

delegate.

Special Agent A special agent is one who is employed to do some particular act or represent

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his principal in some particular transaction e.g. an agent employed to sell a

scooter.

Mercantile Agent A mercantile agent is one who has authority either to sell goods or to buy

goods or to raise money on the security of goods.

The various Kinds of mercantile agents are as follows.

Factor - A factor is a mercantile agent to whom goods are given for sale.

He sells the goods in his own name upon such terms as he thinks fit. He

may pledge the goods as well.

Commission agent – A commission agent is a mercantile agent who

buys or sells goods for his principal on the best possible terms in his

own name & who receives commission for his labours. He may have

possession of goods or not.

Del credere agent – He is one who in consideration of an extra

commission, guarantees his principal that the third persons with whom

he enters into contracts on behalf of the principal shall perform their

financial obligations, that is ,if the buyer does not pay, he will pay. Thus,

he occupies the position of a surety as will as of an agent.

Broker – He is one who is employed to make contracts for the purchase

and sale of goods. He is not entrusted with the possession of goods. He

simply act as a connecting link and brings the two parties together to

bargain and if the transaction materializes he becomes entitled to his

commission called brokerage. He makes contract in the name of his

principal.

Non mercantile agent A non mercantile agent means the agent who does not deal in mercantile

transaction.

Sub – Agent -

Section 191

Subagent is a person employed by and acting under the control of the original

agent in the business of the agency. Thus a person employed by an agent is

called a subagent.

Substituted Agent -

Section 194

An agent may be entrusted by the principal with the task of finding &

appointing another agent for the principal.

The agent appointed in this way may be in addition to the existing agent or

may replace him. Such an agent has been called substituted agent.

15.7 Delegation of Authority Section 190

Meaning of delegation of authority

Delegation of authority means appointment of a sub agent by the agent.

Can an agent appoint

a sub – agent so as to

delegate his

authority

General Rule

An agent cannot appoint a subagent by delegation to him the authority that

was given to him by the principal.

This rule is based on a well known maxim of law.” Delegatus non protest

delegare”.

Exception -:

However there are certain exceptions to this rule wherein the delegation of

authority shall be held to be proper.

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Principal’s consent – The principal may expressly permit the agent to

appoint a sub – agent.

Trade custom – The appointment of sub – agent may be proper if

permitted by the custom in the concerned trade.

Nature of works – If the nature of works entrusted to agent is such that

he has no option but to appoint a sub – agent, then he is permitted to do

so.

Routine acts – The agent may not be allowed to appoint a sub – agent

where his professional skill is relied upon by the principal. But to do

some routine and clerical act ,he may appoint a sub agent

15.8 Sub Agent Section 191, 192, 193

Meaning of sub

agent

A subagent is a person

Employed by; and

Acting under the control of the original agent in the business of the agency.

Consequences of

appointing a sub-

agent Section 192 &

193

When the appointment is proper –Section 192 provides following consequences in

such a case:

Principal is liable to third parties for the acts of sub – agent since the latter’s

acts becomes the acts of his own principal i.e. the agent and the agents act are

the acts of the principal.

The agent is responsible to the principal for the acts of sub-agent. So, if the

principal has to make any recoveries from the sub – agent, he can sue only the

agent and not the sub – agent because there is no privity of contract between

the principal & the sub-agent.

The sub-agent is directly liable not to the principal for his negligence or breach

of duty but to has own principal i.e. the agent.

The sub agent cannot hold the principal liable for any claims such as his

commission. He can sue his own principal, i.e., the agent only.

When the appointment is improper – Section 193 provides for following

consequences when the appointment of sub-agent is improper.

The principal is not liable to third parties for sub-agent’s act who does not

represent him.

The agent is liable to the third parties and also to the principal for acts of the

sub-agent.

The sub-agent is not liable to the principal at all, even for his fraud or willful

wrong. He is liable only to the agent.

15.9 Relation of Principal & Agent Section 211,225

I. Duties of Agent – Sec 211-218

Every agent has the following duties towards his principal.

To follow

principal’s

instructions and the

An agent is bound to conduct the business of his principal according to the

direction given by the principal or in the absence of any such directions

according to the custom which prevails in doing business of same kind at the

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customs place where the agent conducts such business.

To exercise

reasonable diligence

and skill

An agent is bound to conduct the business of the agency with as much skill as

is generally possessed by person engaged in similar business unless the

principal has notice of his want of skill.

To maintain

business secrets of

principal

An agent must maintain secrecy of any information relating to business of the

principal that is in his possession. This duty can particularly arise in case of

bankers acting for their customers.

To maintain and

render accounts

The agent has to prepare true accounts of his transaction made for the

principal and render them to him.

An agent is bound to render proper accounts to his principal on demand

To communicate It is the duty of an agent in case of difficulty or an extra ordinary situation to use all

reasonable diligence in communicating with his principal and in seeking to obtain

his instructions

Not to deal on his

own account

Agency is a fiduciary relationship. The agent must always maintain good faith

for the principal. This give rise to several expectations from the agent. One

such is that he must not deal on his own account in the business of agency.

This means that he must not deal with the principal on account of himself i.e.

make himself a third party in relation to the principal without informing him

of all relevant facts & seeking his consent.

If he violates this duty the principal may repudiate the transaction made by

the agent if either any material fact has been dishonestly concealed from him

by the agent or the dealings of the agent have been disadvantageous to him

(Section 215).

Not to make Secret

profits

Another expectation from an agent is that he should not use the agency works to

acquire such additional gains for himself which the principal has not sanctioned

expressly or impliedly.

To remit principal’s

money

An agent is required to remit to the principal all sums received on principal’s

account after deducting his own lawful claims due on the principal for

remuneration

Not to delegate

authority

Since agency is a personal relationship between principal & agent, the agent should

not delegate this authority to another person without permission of principal or

other appropriated circumstances.

II. Rights of agent – Sec 217-225

An agent can exercises the following rights against the principal.

Right to receive

rumenration –

Section 219 & 220

An agent has the right to receive remuneration.

If the rumenration is not fixed, then such rumenration as is usual & customary

in such business.

Right of Retainer –

Section 217

The agent has the right to retain principal’s money received by him until his own

claims upon the principal for rumenration, advances or expenses relating to agency

work are not paid.

Right of lien –

Section 221

The agent has lien over the principal’s property in his hands. This right will

entitle agent to retain goods, papers or any other property received from the

principal so long as the agents dues are not paid by the principal.

This is a particular lien available to the agent which means that only such

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property can be retained in relation to which claim is due.

Right of indemnity

Section 222.

An agent is entitled to be indemnified by the principal for any loss caused to him

by his lawful acts done in exercise of authority conferred upon him.

Right to

compensation

Section 225

The principal must make compensation to his agent in respect of injury caused to

such agent by principal’s negligence or want of skill.

Right of stoppage of

goods in transit

An agent has a right to stop the goods in transit to the principal if -:

He has bought goods either from his money or by incurring a personal liability

for the price; and

The principal has become insolvent.

PAST ATTEMPT

QUESTIONS

Q1. Mr. Ahuja of Delhi engaged Mr. Singh as his agent to buy a house in West Extension

area. Mr. Singh bought a house for Rs. 20 lakhs in the name of a nominee and then

purchased it himself for Rs. 24 lakhs. He then sold the same house to Mr. Ahuja for Rs.

26 lakhs. Mr. Ahuja later comes to know the mischief of Mr. Singh and tries to recover

the excess amount paid to Mr. Singh. Is he entitled to recover any amount from Mr.

Singh? If so, how much? Explain. [CA PE II NOV. 2005]

Q2. J, the owner of a Fiat car wants to sell his car. For this purpose he hands over the car to

P, a mercantile agent for sale at a price not less than Rs. 50,000. The agent sells the car

for Rs. 40,000 to A, who buys the car in good faith and without notice of any fraud. P

misappropriated the money also. J sues A to recover he car. Decide giving reasons

whether J would succeed. [CA PE II NOV. 2005]

Q3. P appoints A as his agent to sell his estate. A, on looking over the estate before selling it,

finds the existence of a good quality Granite–Mine on the estate, which is unknown to

P. A buys the estate himself after informing P that he (A) wishes to buy the estate for

himself but conceals the existence of Granite–Mine. P allows A to buy the estate, in

ignorance of the existence of Mine. State giving reasons in brief the rights of P, the

principal, against A, the agent. What would be your answer if A had informed P about

the existence of Mine before he purchased the estate, but after two months, he sold the

estate at a profit of Rs. 1 lac? [CA PCC MAY 2008]

15.10 Principal’s liability for the acts of the agents

When agent acted

within his authority

If an agent has acted within the scope of his authority whether it is actual or

ostensible or emergency principal is bound by its consequences towards third

parties.

When agent acted

beyond his authority

When an agent has done an act which does not fall within any type of authority,

available to him, the principal shall be liable for such an unauthorized act to the

third party if he ratifies it.

15.11 Unnamed Principal

Meaning of

Unnamed principal

Unnamed principal means a principal whose existence is dis closed by the agent but

the name is not disclosed.

Liability of

unnamed principal

Once it is disclosed by the agent that he is an agent the contract made by the agent

binds the principal and the agent drops out of the transaction.

Liability of agent -:

If agent declines to disclose the identity of the principal he becomes personally

labile on the contract.

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15.12 Undisclosed Principal Section 231&233

Meaning of

undisclosed

principal

Where an agent having authority to contract on behalf of another makes the

contract in his own name concealing not only the name of his principal but also the

fact that there is a principal, this principal is called undisclosed principal.

Rules in case of

undisclosed

principal

The following rules will apply in the case of an undisclosed principal :

Agent’s liability – The agent would be personally liable to the third party

because he had made the contract as a principal himself.

Principal’s Liability - In addition to the agent the principal may also be liable to

third party. Since in this case the existence of a principal behind the contracting

agent is also a reality the principal two would have a position in the contract.

Rights of third party If the existence of the principal is made known to the other contracting party

before obtaining judgement against the agent, he may hold the agent or the

principal or both of them liable.

If the principal discloses himself before the contract is completed, the other

contracting party may refuse to fulfil the contract, if he can show that, if he had

known who was the principal in the contract ,or if he had known that the agent

was not a principal , he would not have entered into the contract.

15.13 Pretended Agent Section 235 & 236

Meaning A person who untruly represents himself to be an agent of another and thereby

induces a third party a deal with him is called a pretended agent.

Liability of

pretended Agent

A person untruly representing himself to be the authorized agent of another ,and

thereby inducing a third party to deal with him as such agent ,is liable, if his

alleged employer does not ratify his acts, to make compensation to the other

party

In addition such a pretended agent may also be sued for fraud by the aggrieved

party.

15.14 Personal liability of agent Section 227, 228, 230

General Rule As a rule an agent cannot be personally held liable for them, unless there is a

contract to contrary (Section 230)..

Exception:- However, there are certain exceptions to this rule when an agent is presumed to be

personally liable,

Where the agent

expressly agrees

If an agent, while contracting with a third party expressly agrees to be personally

liable on the contract, he can be held personally liable for any breach of contract.

Where the agent

acts for a foreign

principal

Where an agent contracts for the sale or purchase of goods for a merchant residing

abroad, he is presumed to be personally liable (Section 230).

Where the agent

acts for an

Where an agent acts for an unnamed principal, he is personally liable to the third

party, if he declines to disclose the identity of the principal

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unnamed principal

Where the agent

acts for an

undisclosed

principal

Where an agent acts for an undisclosed principal & contracts in his own name he is

personally liable to the third party.

Where the agent

acts for a principal

who cannot be sued

An agent is also presumed to incur personal liability where he contracts on behalf of

a principal who, though disclosed, cannot be sued. (Section 230).

Where the agent

exceeds his

authority

When an agent acts in excess of his real he will be personally liable to the third party

for the excess part if it can be separated from authorized part or otherwise for the

whole transaction (Section 227 & 228).

Where there is a

trade usage or

custom

An agent also incurs personal liability where there is a trade usage or custom to that

effect.

Where agent’s

authority is coupled

with interest

Where the contract with the third party relates to a subject matter in which the agent

has a special interest, agent is personally liable to the extent of his interest because

he is really a principal for that interest.

PAST

ATTEMPT

QUESTIONS

Q1. What tests can be applied in determining whether a person is an agent of another? State

any five circumstances where under an agent is personally liable to a third party for the

acts during the course of agency. [CA PE II MAY 2003]

Q2.State the circumstances when an agent is personally liable for the contracts entered into

by him on behalf of his principal. [CA PE II MAY 2005]

15.15 Irrevocable Agency Section 202, 204

When the authority given to an agent cannot be revoked it is said to be irrevocable agency. An agency

becomes irrevocable in the following cases

Where the agency

is coupled with

interest Section

202.

Where the agent has himself an interest in the subject matter of agency, the

agency is said to be coupled with interest.

An agency coupled with interest cannot be terminated to the extent of such

interest. In other words where the agent has himself an interest in the property

which forms the subject matter of the agency, the agency cannot be terminated to

the prejudice of such interest. However, the contract of agency may provide

otherwise.

Where agent has

partly exercised

his authority –

Sec. 204.

If the agent has exercised his authority to some extent, the principal cannot take

away the agent’s authority for at least such acts & obligations which arise out of the

acts already done by the agent.

Where agent

incurs a personal

liability under

agency

When an agent, while performing his duties, incurs a personal liability, the principal

cannot revoke agent’s authority because it may cause personal loss to him. However

authority may be revoked after giving damages to the agent.

PAST

ATTEMPT

QUESTIONS

Q1. An "agency coupled with interest" may be terminated, at the instance of the principal at

any time. [CA IPCC NOV. 2009]

Q2. An agency in which the agent himself has interest in the subject matter of agency is

called:

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(a) Agency by estoppel

(b) Agency by holding out

(c) Agency by necessity

(d) Agency coupled with interest[CA IPCC MAY 2011]

Q3. Sunil borrowed a sum of Rs. 3 lakh from Rajendra. Sunil appointed Rajendra as his

agent to sell his land and authorized him to appropriate the amount of loan out of the

sale proceeds. Afterwards, Sunil revoked the agency. Decide under the provisions of the

Indian Contract Act, 1872 whether the revocation of the said agency by Sunil is lawful?

5[CA Inter.(IPC) MAY 2014]

Q4. Agency coupled with interest irrevocable[CA Inter.(IPC) MAY 2015]

15.16 Termination of agency Section 201,203, 207,209

Meaning of

termination of

agency

Like any contractual relationship an agency can also come to an end. This would be

called termination of agency.

Modes of

termination of

Agency

Section 201 has pointed towards the circumstances which bring about termination of

agency.An agency can come to end broadly under the following circumstances (1)

By Acts of parties, and (2) By operation of law

Termination by

Acts of parties

The parties to agency i.e. the principal & the agent, may themselves bring an end to

there relationship in the following manner:

By mutual agreement – Like any other contract an agency may be brought to

an end by a mutual agreement between the two parties to that effect. Such an

agreement may be made at any time & with any terms between the parties.

By revocation by principal – The principal is allowed to revoke the authority

granted to the agent & thereby terminate the relationship.

By renunciation by agent

Agent too is free to break off his relationship with the principal (Section

201).

His breaking off the relationship has been termed as renunciation. He too is

required to follow proper procedure to renounce his business or else he

shall be guilty of breach of contract.

Termination by

operation of Law

Under this category would fall such circumstances when the agency will come to an

end not by the parties doing anything for it but by the application of some

provisions of law relevant for situation. The circumstances are as follows

Completion of

business

Where the agency is created for a specific business only it comes to an end on the

completion of that business.

Death or insanity of

either party Death of principal or agent will terminate the personal relationship that the two had

created in the form of agency.

Insolvency of

principal When the principal is adjudicated as insolvent by court he becomes incapable

to assume fresh legal obligations ands therefore agency terminates.

Expiry of time When an agency has been created for a fixed time period, it comes to an end on the

expiry of that time period whether the purpose of its creation is achieved or not.

Supervening

Impossibility

Subsequent to the creation of agency, if an event takes place which makes the

continuation of agency, or the work under it impossible or illegal, the agency comes

to an end.

Chapter 15 Agency


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