January 23, 2022

Termination of Agency under Indian Contract Act, 1872

Contract law

Termination of agency is when the relationship between principle and agent comes to an end. An agreed relationship between the principle and the agent by agreement or law by a third party known as the agency in the contract. The agent deals with third parties on behalf of the principal.

Section- 182 of the Indian contract act defines the agent and principal. Any person whose behalf or under control agent works is called principle. Example- Your boss at work.

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 .

Termination of Agency

When the relationship between principle and agent comes to an end, it’s known as termination of agency. Section: 201 – 210 deals with termination of agency.

Modes of termination: The provisions relating to the mode of agency are defined under Section 201 of the Indian Contract Act – 1872. Section- 201 which provides termination of agency is not comprehensive. We can divide termination of agency into two parts:

1. By the act of parties.

2. By the operation of law.

By the act of parties:

There are following manner in which by the act of parties the agency can be terminated:

Revocation by mutual agreement: The agency of contract can be terminated at any time by mutual agreement between the principal and the agent.

Revocation by the principal: Agency can be terminated by the principal by revoking the agent’s authority. The principle can revoke his agent’s authority when it has not been exercised by the agent reasonable, notice must be given for such revocation.

For Example- A empowers B to let A’s house. Afterwards A lets it himself. This is an implied revocation of B’s authority.

Revocation by the Agent: The Agent also can revoke the agency by serving notice to the principle. As per section 206 of the Indian Contract Act 1872, the agent must give proper notice of renunciation / revocation of his principal. Otherwise, he shall be liable to make good for the loss to the principal for such notice.

By operation of law:

The following points are included in this:

By the completion of agency – After completion of agency work, an agency can be terminated for which agency is created.

Example: Mahesh employed Sachin as his agent to sell his house in China when the house was sold by Sachin, it automatically terminates the contract of agency between Mahesh and Sachin.

By the end of time- The agency can also be terminated by the end of time. If the agency is created for a specific period of time, then it expires after the time period is over.

Example: Anandam employs to anjana as a secretary for the period of 3 years at the end of the 3 years. The contract of agency will come to an end after the specified period.

Death or insanity of principle or agent: Section 209 of the Indian Contract Act deals with it. If there is a death of the principle or agent, the business or agency of the firm may be terminated in this situation.

Insolvency of principle: To create an agency it is necessary to be competent but, if the principal becomes insolvent or bankrupt, the agency may be terminated.

Destruction of subject matter – If this subject of agency is destroyed then the agency is closed.

For example – any agency is made for sale of airplanes, if the airplane catches fire before the sale then, this agency can be terminated because airplane are the subject of this contract.

Principal becomes a foreign enemy – If the principal becomes a foreign enemy, the contract of agency terminates.

Example: Mr. T is employed in America and Mr Sachin who works as an agent for Mr. T in China for business, due to war climate between the countries of principal and agent, the contract of agency gets terminate.

Winding up of company or firm – A firm or company can be considered as a chief in an agency contract. If the company or firm is dissolved, then the agency is terminated.

Agent’s liability before termination of agency

Conducting the principal’s business according to the instructions given by the principal (section- 211): As per section 211, an agent shall act within the purview of the authority that his principle authorises him. Furthermore, he would strictly follow the instructions of his principal . However, in the absence of express instructions from his principal, he would follow the custom prevailing at the place where he performs his business, in a similar occupation.
Run the agency’s business competently and to punish the principal for loss of competence or incompetence in the case of his own negligence: Section 212 states that he shall work with due skill and diligence. Furthermore, where the nature of an agent’s profession requires him to possess a particular skill, then the agent must use the particular skill for completion of work.

It is the duty of the agent to keep correct and impartial accounts and prepare them on a proper notice.
An agent will not make any secret profit and he will disclose any additional profit made to the principal. Where the principal realizes that the agent is making a secret profit, he can dismiss the agent without notice, recover the amount of the profit and also dissuade him from paying his remuneration. He can also cancel a contract where a third party is also involved in the fraud and recover damages.

Rendering the principal with proper and accurate accounts.

In contact with the principal and trying to receive his orders, using all due diligence.

To pay to the principal, all amounts received in the course of the company and without the prior permission of the principal from any work performed on the account of the latter.

Principal’s liability before termination of agency:

Duty to compensate agent: An agency relationship may be repaid or be grateful. An agency’s terms can be put into an agency agreement. If the agency contract does not indicate the terms of compensation, the principal agent is obliged to provide appropriate compensation.

Example: Default rules in a relationship with a sales agent dictate that the agent will earn a reasonable commission when the sale is made or motivated.

Duty to reimburse an agent: The principal should reimburse the agent for the appropriate amount spent in performing his duties. Proper reimbursement includes travel costs, meals, accommodation, contingency expenses, etc.

Indemnity an agent?

Generally, a principal must condemn an agent for liability in the performance of his duties. This usually arises when the principal’s instructions give the agent a third party for liability.

If an agent is outside the purview of his rights or acts, the principal may exempt him from indemnity. If the principal later confirms the agent’s actions, he will be obliged to convict the agent against the liability.

Liability of principle and agent after termination:

Duty to compensate agent: An agency relationship may be repaid or be grateful. An agency’s terms can be put into an agency agreement. If the agency contract does not indicate the terms of compensation, the principal agent is obliged to provide appropriate compensation.

Notice of revocation: The principal must give notice to the agent and the third party with the reason of termination. And this notice must be served to both the parties.

Revocation may be express or implicit: The revocation can be expressed or implicit.

• The principal and agent are free now and can enter any other contract differently.

Case laws related to termination of agency:

1. R. Sayani v. Bright Bros (P) Ltd., AIR 1980 Mad 162
Where an organization is formed for a defined amount for time, the liability for premature termination will have to be compensated if the termination was not justified. No proper warning was given for the department’s premature decision. The agent got Rs. 4000 per month. The court was of the view that there should have been a warning of at least three months. In contrast, a reward of Rs. 12,000 was allowed.

2. Carter v. White, (1883) 2d 666: (1881–85) All ER Rape 921
A principal paid the money to his agent and gave him an agreed exchange bill with the authority to fill it in the drawer’s name. The principal died before he could finish the bill. His power to fill in the name of the drawer was not considered terminated.

3. Sukhdev V. Command of the Command, (1998) 1 BC 403 (AP)
Through the termination of the name, an agency is automatically terminated. Where gas pumps were to be regulated by the agency for a specified time, it was assumed that the agent was obliged to evacuate the premises at the end of the period. There was no extension provision, nor was there any actual renewal clause.

4. Truman v. Lauder (1840) 11 AD and L589
A was working as an agent of B here. With B’s authority, all parties with whom A has entered into a contract in that undertaking have the right to hold B accountable until B informs the world that A’s authority has been taken away and that it makes sense. The question here was whether the agent intends to maintain the contract his account in a specific situation. The court rejected the claim that it was improper to ask the principal to tell the whole world that he had revoked his agent’s power of attorney and that he should not be expected to contact such a person Will with whom an agent was ready to deal. . And notify him of termination


Finally, we can conclude that contracts establishing agency relationships are very common in business law. They can be expressed or implied. An agency is created when a person delegates his authority to another person, namely appointing them to do some specific task or assigning many of them to specified areas of work. Establishing a principal-agent relationship acknowledges the rights and duties of both parties. There are various examples of such a relationship: insurance agency, advertising agency, travel agency, factor, broker, agent, etc. There is also some methods of termination of agency.

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Author Details: Laxmi Soni

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