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ABSTRACT
An agent's authority can be terminated at any time. If the trust
between the agent and principal 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.
As per Section 201 to 210 The Indian Contract Act, 1872, an agency
may come to an end in a variety of ways:
(i) By the principal revoking the agency – However, principal
cannot revoke an agency coupled with interest to the prejudice of
such interest. Such Agency is coupled with interest. An agency is
coupled with interest when the agent himself has an interest in the
subject-matter of the agency, e.g., where the goods are consigned
by an upcountry constituent to a commission agent for sale, with
poor to recoup himself from the sale proceeds, the advances made
by him to the principal against the security of the goods; in such a
case, the principal cannot revoke the agent’s authority till the
goods are actually sold, nor is the agency terminated by death or
insanity. (Illustrations to section 201) (ii) By the agent renouncing
the business of agency; (iii) By the business of agency being
completed; (iv) By the principal being adjudicated insolvent
(Section 201 of The Indian Contract Act. 1872)
The principal also cannot revoke the agent’s authority after it has
been partly exercised, so as to bind the principal (Section 204),
though he can always do so, before such authority has been so
exercised (Sec 203).
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Further, as per section 205, if the agency is for a fixed period, the
principal cannot terminate the agency before the time expired,
except for sufficient cause. If he does, he is liable to compensate
the agent for the loss caused to him thereby. The same rules apply
where the agent, renounces an agency for a fixed period. Notice in
this connection that want of skill continuous disobedience of lawful
orders, and rude or insulting behavior has been held to be sufficient
cause for dismissal of an agent. Further, reasonable notice has to
be given by one party to the other; otherwise, damage resulting
from want of such notice, will have to be paid (Section 206). As per
section 207, the revocation or renunciation of an agency may be
made expressly or impliedly by conduct. The termination does not
take effect as regards the agent, till it becomes known to him and
as regards third party, till the termination is known to them
(Section 208).
When an agent’s authority is terminated, it operates as a
termination of subagent also. (Section 210).
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ACKNOWELEDGMENT
Firstly I would thank the almighty GOD for giving me strength to
complete the task which I was assigned.
I would also like to thank Gujarat National Law University for
assigning me this project and giving me the opportunity to study
about this topic which is considered to be the most important in the
criminal law.
I would also extend my gratitude to Mr. R. K. Singh, Faculty of Law
for all the help and support in the completion of my project report.
Lastly I would thank my parents and friends for all their support
and help.
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LIST OF ABBREVIATIONS
AIR All India Reporter
All ER All England Law Reports
CA Chancery Appeal
Cal Indian Law Reports, Calcutta Series, from 1876-
CLR Commonwealth Law Reports
HL House of Lords
HP Indian Law Reports, Himachal Pradesh
IA Law Reports Indian Appeals
Ker Indian Law Reports, Kerela Series
Mad Indian Law Reports, Madras Series
MHC Madras High Court Reports
MP Indian Law Reports, Madhya Pradesh Series
Ori Indian Law Reports, Orissa Series
PC Privy Council
Pun Indian Law Reports, Punjab Series
QB Law Reports, Queen’s Bench
Sau Saurashtra Law Reports
SC Supreme Court
SCC Supreme Court Cases
v Versus
Ves Sen Vesey Senior’s Report
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LIST OF CASES
1. (Cf.) French & co. v. Leeston Shipping Co., (1992) 1 AC 451.
2. Agarwal Jorawarmal v. Kasam, AIR 1937 Nag 314;
3. Alliance Bank of Simla Ltd v. Amritsar Bank, AIR 1915 Lah
214.
4. Atul v. Laxman, (1909) 36 Cal. 609.
5. Badrinaraian Agrawall v.Brijnarayan Roy, AIR 1917 Cal 436
6. Banarshi Agarwall v. Sankarlal Agarwalla, AIR 1961 Assam 13.
7. Birat Chandra Dagara v. M/s. Taurian Exim Pvt. Ltd., AIR 2005
Ori 147
8. Blackburn v. Scholes (1810)2 Camp 343;
9. Boulton Bros. & Co. v. New Victoria Mills Co., (1929) 26 ALJ
1119
10.Bright Bros Pvt. Ltd. v. JK Sayani, AIR 1976 Mad 55.
11.Bristow v. Taylor, (1817) 171 ER 568;
12.Burn v. Carvalho, (1239) 41 ER 265
13.Carmicheal’s Case, (1896) 2 Ch 643;
14.Carnegie, [1969] 85 LQR 392.
15.Clerk v. Laurie, (1857) 157 ER 83;
16.Clouston v. Corry , (1906) AC 122; Pearce v. Foster, (1886) 17
QBD 536.
17.Cuckson v. Stones, (1858) 120 ER 902
18.Daily Telegraph v. M’Laughlin, (1904) AC 776
19.Dasarath v. Brojo Mohan, (1914) 18 CLJ 621.
20.Day v. Wells, (1861) 54 ER 872;
21.De Comas v. Prost, (1865)16 ER 59;
22.Development of Industries (India) P. Ltd v. Commissioner of
Income Tax, AIR 1968 Cal 492 : 72 Cal WN 416.
23.Dilchand v. Hazarimal, AIR 1932 Nag. 34;
24.Drew v. Nunn, (1879) 4 QBD 661;
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25.Ebrahim v. Chunilal, (1911) 35 Bom 302
26.Edgar v. Fowler, (1803) 102 ER 582.
27.EP Nelson & Co. v. Rolfe, [1949]2 All ER 584 (CA)
28.Freeman v. Fairlie, (1838) 8 LJ Ch. 44.
29.Frith v. Frith, (1906) AC 254;
30.Godhandas v. Firm of Gokal Khataoo, AIR 1926 Sind 264;
31.Hamilton v. Spottiswoode, (1849) 154 ER 1182.
32.Harihar Prasad v. Kesho Prasad, (1925) Pat 68.
33.Hastelow v. Jackson, (1828) 108 ER 1026;
34.Hill v. Royds, (1869) 8 Eq 290;
35.Hingu Lal v. Sarju Prasad, AIR 1937 All 363;
36.Hudson v. Granger, (1821) 106 ER 1103
37.Inchbold v. Western Nilgherry Coffee Co., (1864) 144 ER 293
38.International Oil Co. v. Indian Oil Co. Ltd., AIR 1969 Mad 423;
Thathaiah M & S.M. Railway, ILR (1957) Mad 215
39.Ishwarappa v. Arunkumar, AIR 2004 Kant 417
40. Jafferbhoy v. Charlesworth,(1893) 17 Bom. 520
41.Janardhan Jaikrishna v. Gangaram Mangalchand, AIR 1951
Nag 313.
42.Kashi Ram & anr v.Raj Kumar & Ors., AIR 2000 Raj. 405,406
43.Kathoom Bivi v. Arulappa Nadar, AIR 1970 Mad.76;
44.Kinattikara Madhavan Nair v. MR Rly Manavikram Zamorin
Maharajah Avergal, AIR 1928 Mad 906
45.Kirtyanand v. Ramanand, (1936) Pat. 456.
46.Kishen Devi v. Banwar Lal, AIR 1928 Lah 688;
47. Kondayya v. Narasimhulu, (1896) 20 Mad 97
48.Kongatti Valia Nair v. Subramania, (1899)9 MLJ 290;
49.Kulsekarapatnam Hand Match Workers’ Co-operative Cottage
Industrial Society Ltd. v. Radhelal Lallolal, AIR 1971 MP 191
50.Lakshmandas Khandelwal v. Raghumull, AIR 1919 PC 49
5
51.Lakshmi Chand v. Firm of Chajju Mal Ratan Lal, AIR 1926 Lah
200.
52.Lakshmichand v. Chotaram, (1900) 24 Bom. 403.
53.Llanelly Rly and Dock Co v. London and North Western Rly
Co, (1875) LR 7 HL 550;
54.Ma Byaw v. Mg Tun Hlaing, (1934) Ran 341,
55. Mahendra Pratap Singh v. Padam Kumari Devi, AIR 1993 All
143.
56.Maung Lu Gale v. U. Po Hlaing,(1934) Ran. 104;
57.Mohendra v. Kail Prasad, (1903) 30 Cal.265
58.Moosajee Ahmad & Co v. Adm. General, Bengal, (1921) 3 LLJ
265.
59.MSA Pl Palaniappa Chetty v. T Mr Alagappa Chetty, AIR 1916
Mad 1104
60.Mujjid-un-Nissa v. Abdur Rahim, 28 IA 15.
61. Murtunjoy v. John Cockrane, (1865)10 MIA 229 (243).
62.Mutharasu Thevar v. Mayandi Thevar, AIR 1968 Mad 333.
63.N.S.Srinivas v. Madduri Mallareddy, AIR 2005 AP 177.
64.Narasinga v. Muthusami Naliker, (1897) 7 MLJ 218
65.Narayanan Chettiar v. Kaleswar Mills, AIR 1952 Mad 515.
66.Page v. Combined Shipping & Trading Co. Ltd., (1997) 3 All
ER 656 (CA)
67.Parker v. Smith, (1812)104 ER 1133
68.Pearson v. Graham, ((1837) 112 ER 344
69.PMARm Muthiah Chettiar v. AVA Chidambaram Chetti, AIR
1918 Mad 1200.
70.Pool v. Pool, (1889) 58 LJP 67
71.Popular Shoe Mart v. K Srinivasa Rao, AIR 1990 NOC 87 (AP).
72.Prickett v. Badger, (1856) 1 CBNS 296
73.Raghumull v. Luchmondas, AIR 1917 Cal 52
74.Rajaram Nandlal v. Abdul Rahim, AIR 1915 Sind 30.
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75.Read v. Anderson, [1881-85] All ER Rep 1104.
76.Rhodes v. Forwood, (1876) 1 AC 256.
77.Ruchiram-Sukha Nand v. Charan Das AIR 1928 Lah 833;
78.Sayam v. Bright Brothers, (1980) 1 MLJ 130.
79.Seton v. Slade (1802)7 Ves 265, p.276
80.Shankar Singh v. Toshan Pal Singh,AIR 1934 All 553.
81.Shaw Wallace & Co, AIR 1931 Cal 676
82.Smart v. Sandars, (1848) 136 ER 1152;
83.Sorabji Dhunjibhoy Medora v. Oriental Govt. Security Life
Assurance Co Ltd., AIR 1944 Bom 166 (two years was
reasonable).
84.Southern Railways Ltd v. S.M.Krishnan, AIR 1990 Sc 673.
85.SRMCTSSPA Chettyar Firm v. U on Maung, AIR 1940 PC 211;
86.State of Kerela v. G.L.Kihikara, 1966 Ker. Lj 487
87.Stevenson v. Actiengesellscaft & Co., (1918) AC 239.
88.Subhash v. Feroze Khan, AIR 1982 Del. 114
89.Sures Kanta Banerjee v. Nawab Ali Sikdar, AIR 1916 Cal 800
90.Taylor v. Browners, (1876) 1 QBD 291;
91.Venkanna v. Achutaramanna, (1938)1 MLJ 610
92.Venkatachalam Chetty v. ANRM Narayan Chetty, AIR 1916
Mad 281
93.Vishnucharya v. Ramachandra, (1881) 5 Bom 253.
94.Warlow v. Harrison, (1858) 120 ER 920; Day v. Welis, (1861)
54 ER 872.
95.Warwick v. Slade, (1811) 170 ER 1329.
96.Yonge v.Toynbee, [1908-10] All ER Rep 204 (CA)
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INTRODUCTION
An agency may be terminated by:
(i) Revocation of the agent’s authority by the principal (Sec.
203-207);
(ii) Agent renouncing the agency ( Sec. 205);
(iii) Completion of the business of agency;
(iv) Death of the principal or agent (Sec. 209);
(v) The principal or agent becoming of unsound mind (Sec.
209);
(vi) The principal being adjudicated an insolvent.
An agency is deemed to continue in the absence of anything that
would prove termination of the agency1 on one or the other grounds
mentioned in the sections or below2. Termination of agency is a
question of fact and not of law, and turns upon the circumstances of
each case.3
This section is not exhaustive.4 An agency may be terminated by
other modes, viz:
(i) By mutual agreement;
(ii) Completion of the term of agency by expiry of time agreed
upon;
(iii) Destruction of the subject matter of the agency;
(iv) The agency becoming subsequently unlawful;
(v) Dissolution of the principal firm.
1 Kishen Devi v. Banwar Lal, AIR 1928 Lah 688; Banarshi Agarwall v. Sankarlal Agarwalla, AIR 1961 Assam 13.2 Llanelly Rly and Dock Co v. London and North Western Rly Co, (1875) LR 7 HL 550; Carnegie, [1969] 85 LQR 392.3 Kinattinkara Madhavan Nair v. MR Rly Manavikram Zamorin Maharaja Avergal of Calicut, AIR 1928 Mad 906.4 Janardhan Jaikrishna v. Gangaram Mangalchand, AIR 1951 Nag 313.
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An agency is terminated by an event which terminates a contract,
viz performance, recission, etc. the Law Commission of India
recommended that in these circumstances determining an agency
must be specifically included in this section, as also that insolvency
of agent.5
AIMS AND OBJECTIVES OF STUDY:
The aim and object of the study is to elucidate and enumerate with
illustrations, cases, judgements and opinions of well known jurists,
authors and analysts, the clauses relating to ‘termination of an
agency’. The project also intends to discuss important and
landmark cases and judgements and lay down the history and
growth of the law under the relevant sections.
HYPOTHESIS
From this project, the terms, situations and circumstances under
which an agency can be terminated become comprehensible. The
conditions and circumstances under which an agency can be
terminated have also been elucidated.
METHODOLOGY
The doctrinal method of research has been implemented in
preparing this study, by referring to various secondary sources for
conforming to the requisites of the Indian Contract Act, 1872.
5 Thirteenth Report of the Law Commission of India 1958, para 158 recommended that the first four grounds of termination if agency be numbered (a)-(d) and the following be added (proposed amendments in italics):…(e) by either the principal or agent being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors;(f) by the expiry of the period of agency if any;(g) by the destruction of a material part of the subject matter of the agency;(h) by the happening of any event which render the agency unlawful or upon happening of which it is agreed between the principal and the agent that the authority shall determine;(i) by dissolution of the principal, where the principal is a firm or a company or other corporation.
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SECTION 201 OF THE INDIAN CONTRACT ACT
Sec. 201 of the Indian Contract Act reads as follows:
An agency is terminated by the principal revoking 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 relief of insolvent debtors.
This section deals with the several ways in which the relationship of
principal and agent comes to an end. They are:
(1) Revocation by principal
(2) Renunciation by agent
(3) Completion of the business of the agency
(4) Death of principal or agent
(5) Insanity of principal or agent
(6) Insolvency of the principal
The enumeration is not exhaustive. For instance, there can be no
doubt that the expiry of the time fixed for the agency or the
destruction of the subject matter of the agency puts an end to the
agency6, likewise by breach of contract, by destruction o the
subject matter of the agreement and so-on.7 If the freight to cancel
an agency is reserved in case the agent fails to do a specific amount
of business within a certain period of agency may be cancelled if
the condition is violated.8 Again the agency may subsequently
6 (Cf.) French & co. v. Leeston Shipping Co., (1992) 1 AC 451.7 Development of Industries (India) P. Ltd v. Commissioner of Income Tax, AIR 1968 Cal 492 : 72 Cal WN 416.8 State of Kerela v. G.L.Kihikara, 1966 Ker. Lj 487
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become unlawful, in which case also the agency necessarily
ceases.9
REVOCATION
The principal has the right subject to certain limitations to revoke
the agency and even so the agent in his turn has also the right to
renounce the agency subject equally to certain terms and
conditions. It is in this context that the terms ‘revocation’ and
“renunciation” which primarily appear and are projected in the
forefront in the sub-head or revocation of authority in Sec. 207-210
have to be read together instead of being treated in a truncated
way for the purpose of interpretation.10 It is provided by Sec. 207
infra, that revocation may be express or implied from conduct. It is
open to the principal to revoke the authority at any time before it is
exercised so as to bind him.11 Where the revocation is wrongful or
premature the principal is liable to make compensation, vide Secs.
205 and 206 infra12. In case of authority given by two or more
principals jointly, it is enough if one gives notice or revocation.13 On
revocation the agent has no right to possession of principal’s
property. He has no right to interfere with the principal’s
business.14
RENUNCIATION OF AGENCY
An agent may renounce his authority at any time before completion
of the agency by giving a notice, but he may become liable to the
principal for damages for breach of contract of agency arising out
9 Stevenson v. Actiengesellscaft & Co., (1918) AC 239.10 Sayam v. Bright Brothers, (1980) 1 MLJ 130.11 Lakxhmichand v. Chotaram, (1900) 24 Bom. 403. Freeman v. Fairlie, (1838) 8 LJ Ch. 44.12 Venkatachalam v. Narayana, (1916) 39 Mad 376.13 Bristow v. Taylor, (1817) 171 ER 568; Kirtyanand v. Ramanand, (1936) Pat. 456.14 Southern Railways Ltd v. S.M.Krishnan, AIR 1990 Sc 673.
12
of earlier renunciation15. It has been held that abandonment of the
services by setting up a title adverse to the principal will be
evidence of renunciation.16
COMPLETION OF BUSINESS OF AGENCY
An agency may be terminated after the agent has completed the
business of the agency, or also where the business has been
completed in any other manner, viz by the principal himself, or
through another agent.
Where an agent for the sale of goods receives the price, the agency
does not terminate on the sale of goods, but continues until
payment of the price to the principal; the agent being ‘bound to pay
to his principal all sums received on his account’ under Sec. 218.
‘Clearly then, the business does not terminate on receipts of the
money by the agent, in as much as there is subsequent obligation to
account for the sums and to pay them.’17 The other view is that the
business of agency of sale of goods is completed on completion of
the sale and receipt of price by the agent.18 The agent, then, has no
power to alter the terms of the contract without fresh authority
from the principal.19
The Law Commission of India agreed with the latter view that an
agency is determined when the agent ceases to represent the
principal, though his liability in respect of his acts done by him or
15 Rajaram Nandlal v. Abdul Rahim, AIR 1915 Sind 30.16 Atul v. Laxman, (1909) 36 Cal. 609.17 Hingu Prasad v. Sarju Prasad, AIR 1937 All 363.18 Venkatachalam Chetty v. ANRM Narayan Chetty, AIR 1916 Mad 281 (agency terminates on sale and does not continue until payment of price); Godhandas v. Firm of Gokal Khataoo, AIR 1926 Sind 264; Ruchiram-Sukha Nand v. Charan Das AIR 1928 Lah 833; Hingu Lal v. Sarju Prasad, AIR 1937 All 363; Lakshmi Chand v. Firm of Chajju Mal Ratan Lal, AIR 1926 Lah 200 (date fixed for settlements).19 Blackburn v. Scholes (1810)2 Camp 343; Seton v. Slade (1802)7 Ves 265, p.276
13
by his agent continues; but did not consider it necessary to propose
any change in the language of the Sec.20
The authority of an agent to collect bills and to remit the amount
when realized, by drafts, terminates as soon as the drafts are
dispatched.21
DEATH OF PRINCIPAL OR AGENT
Death of the principal or agent terminates the agency at once,
irrespective of whether the other has notice to that effect;22 though
the authority to bind third parties continue until the third party has
notice of death. A power of attorney to an agent to present a
document for registration is revoked by the death of the principal;
and where the principal died before, the presentation, and the
registrar, knowing of the principal’s death, accepted and registered
the document, the registration was invalid.23 Where a power of
attorney is given by the members of a joint Hindu family to one of
them in connection with the family business, it is a question of
construction in each case whether the power comes to an end on
the death of any of them, or whether it is to continue even after
then.24 Thus, where a karta of such a family appoints an agent to
manage family property, and he dies, the agency continues,
because it relates to the joint family, and not the karta personally25.
Where there are two agents, death of one of them would terminate
the agency only in respect of the deceased and not of the surviving
20 Thirteenth Report of the Law Commission of India 158, para 15721 Alliance Bank of Simla Ltd v. Amritsar Bank, AIR 1915 Lah 214.22 Pool v. Pool, (1889) 58 LJP 6723 Mujjid-un-Nissa v. Abdur Rahim, 28 IA 15.24 Badrinaraian Agrawall v.Brijnarayan Roy, AIR 1917 Cal 436 (death of one principal does not terminate his authority as regards surviving principal). 25 Shankar Singh v. Toshan Pal Singh,AIR 1934 All 553.
14
agent26, unless a contrary intention appears from the terms of the
agency.
INSANITY OF PARTIES
The authority of an agent is terminated if the principal becomes of
incapable by reason of mental illness of managing his affairs.27 The
principal’s insanity infact, is sufficient to annul the agent’s
authority28, it is not necessary that he be declared so. The
principal’s insanity terminates the agency even though the agent
has no notice of it.
The section seems to be in consonance with the rule of modern
English Law.29 The earlier English view was that the insane person
must be certified to be so in a proper inquiry conducted for that
purpose.
INSOLVENCY OF PARTIES
Agency is also terminated by the insolvency of the principal30. But,
where the principal is a firm and one of the partners becomes
insolvent, the agency does not ipso facto terminate31. The section is
silent as to the effect of the agent’s insolvency. Considering that the
agent is onle a connecting link between the principal and the third
parties, there may be ground for saying that the insolvency puts an
end to the agency, except in cases where the act to be done by the
agent is merely formal.32 In any event authority to receive payment
on behalf of the principal is determined by the agent’s insolvency.33
26 Agarwal Jorawarmal v. Kasam, AIR 1937 Nag 314; Raghumull v. Luchmondas, AIR 1917 Cal 52 (death of one agent does not terminate agency of co-agent).27 SRMCTSSPA Chettyar Firm v. U on Maung, AIR 1940 PC 211; Mahendra Pratap Singh v. Padam Kumari Devi, AIR 1993 All 143.28 Yonge v.Toynbee, [1908-10] All ER Rep 204 (CA).29 Drew v. Nunn, (1879) 4 QBD 661; Daily Telegraph v. M’Laughlin, (1904) AC 776 30 Pearson v. Graham, ((1837) 112 ER 34431 Agarwal Jowarmal v. Kasam, ILR (1937) Nag 2832 Parker v. Smith, (1812)104 ER 113333 Hudson v. Granger, (1821) 106 ER 1103
15
It should however be remembered that in cases of death, lunacy or
bankruptcy of the principal, the fact of the death or insanity must
be known to the other party.
16
SECTION 202- TERMINATION OF AGENCY
WHERE AGENT HAS AN INTEREST IN SUBJECT
MATTER
Section 202 of the Indian Contract Act reads as following:
Where the agent has himself an interest in the property which
forms the subject-matter of the agency, the agency cannot, in the
absence of an express contract, be terminated to the prejudice of
such interest.
This section forms one of the limitations to the general rules as to
revocation of agency. Decided cases with reference to the section
chiefly center round the question of what constitutes an “interest in
the subject-matter of the agency”. The corresponding English rule
is that, if the agency has been created for effectuating any security
or protecting any interest of the agent, it is irrevocable during the
existence of such interest. Where an agreement is entered into on a
sufficient consideration whereby an authority, such authority is
irrevocable.34it will be observed that the language of the section
wider than that to the English rule. But the English rulings have
however been applied.
Where it is clear that from the power of attorney executed by the
appellant in respect of s mine that right of lease has been
transferred by the appellant creating an interest in favour of the
respondent by receiving consideration, the agency can be said to be
coupled with interest and as such cannot be revoked.35
34 Frith v. Frith, (1906) AC 254; Smart v. Sandars, (1848) 136 ER 1152; Clerk v. Laurie, (1857) 157 ER 83; In re, Carmicheal’s Case, (1896) 2 Ch 643; Kongatti Valia Nair v. Subramania, (1899)9 MLJ 290; Mutharasu v. Mayandi, (1968) 2 MLJ 74.35 Birat Chandra Dagara v. M/s. Taurian Exim Pvt. Ltd., AIR 2005 Ori 147
17
An agency to be irrevocable should create an interest in the subject
matter contemporaneously with the documents wherein such
agency is created and it cannot be left to guess chance of inference
unless such a thing is available in the document itself, all such
other power given, to the agent mainly for the purpose of
reimbursement of money spent by him for and on behalf of the
principal, even in such reimbursement should be by way of
mortgage or sale of properties, would create only a right incidental
to such agency and would amount to the creation of any interest in
the agent over the subject concerned.36
Where an agent who has not been specifically authorized in the
power of attorney to incur loan liability in his personal capacity, the
plea of the agent that the principal cannot revoke the power of
attorney until the liabilities incurred by him are settled is not
acceptable as the agency is not one coupled with interest.37
FACTORS:
The question of authority coupled with interest assumes great
practical importance in the case of factors who have advanced
moneys against goods entrusted to them for sale. The general rule
is that if from the language of the document creating the agency or
the dealings between the principal and agent, it is possible it infer
an interest, the authority is not revocable. In Smart v. Sanders38,
the court observed:
“The doctrine… applies only to cases where the authority is
given for the purpose of being a security as a part of the security,
not to cases where the authority is given independently and the
interest of the donee arises only incidentally….. The making of an
36 Muthurasu Thevar v. Mayandi Thevar, AIR 1968 Mad 33337 Ishwarappa v. Arunkumar, AIR 2004 Kant 41738 (1848) 136 ER 152 : 75 RR 849
18
advance may be a good consideration for an agreement that the
authority to sell shall be no longer revocable, but such an effect will
not arise independently of agreement.”
It is certainly true as was remarked in Jafferbhoy v. Charlesworth,39
that mere advances by a factor whether at time of his employment
as such or subsequently cannot have the effect of altering the
revocable nature of authorities to sell, unless there be an
agreement, express or implied. But in Kondayya v. Narasimhulu40
where the factor was authorized to sell at the best available price
and in case of deficit, draw on the consignor, the court took into
consideration the course of dealings between the parties and held
that an interest in the subject-matter of the agency had been
created and so held the authority irrevocable. Conversely, in
Venkanna v. Achutaramanna,41 where a power of attorney
authorized the agent to conduct a suit on behalf of the principals
and provided that when the subject-matter of the suit was
recovered, the agent would be entitled to a share, it was held that it
was not a case of authority coupled with an interest.
39 (1893) 17 Bom. 520; De Comas v. Prost, (1865)16 ER 59; Frith v. Frith, (1906) AC 254; Murtunjoy v. John Cockrane, (1865)10 MIA 229 (243).40 (1896) 20 Mad 97.41 (1938)1 MLJ 610; Dilchand v. Hazarimal, AIR 1932 Nag. 34; Subhash v. Feroze Khan, AIR 1982 Del. 114 (an agent appointed on commission
19
SECTION 203- WHEN PRINCIPAL MAY REVOKE
AGENT’S AUTHORITY
Section 203 of the Indian Contract Act reads as follows:
The principal may, save as is otherwise provided by the last
preceding section, revoke the authority given to his agent at any
time before the authority has been exercised so as to bind the
principal.
Revocation before authority exercised- It is open to the principal to
revoke the authority so long as no act has been done by the agent
which will bind the principal and no rights of third parties have
come into existence. For instance the authority given to an
auctioneer may be recalled at any time before the goods are
knocked down.42 Similarly, the authority of a policy broker may be
revoked before the execution of the policy.43 Even in respect of
unlawful transactions, (e.g.,) betting transactions, authority to pay
money may be revoked at any time before actual payment.44 But if
the agent has made a contract with third parties so as to bind the
principal, the authority cannot be revoked.45 However, if the agent
simply appropriates a contract previously made by him with third
parties, it cannot be said that the agent has acted so as to bind the
principal in such cases, revocation is possible.46
42 Warlow v. Harrison, (1858) 120 ER 920; Day v. Welis, (1861) 54 ER 872.43 Warwick v. Slade, (1811) 170 ER 1329.44 Taylor v. Browners, (1876) 1 QBD 291; Hastelow v. Jackson, (1828) 108 ER 1026; Edgar v. Fowler, (1803) 102 ER 582.45 Hill v. Royds, (1869) 8 Eq 290; Hamilton v. Spottiswoode, (1849) 154 ER 1182.46 Lakshmichand v. Chotaram, (1900) 24 Bom. 403.
20
Unless the right of revocation of proxies is expressly excluded by
the Articles of Association of a company the right would be
governed by the general law of agency.47
The principal has the right to revoke a vakalat given by his agent
whether the agency was irrevocable or not.48
47 Narayanan Chettiar v. Kaleswar Mills, AIR 1952 Mad 515.48 Mutharasu Thevar v. Mayandi Thevar, AIR 1968 Mad 333.
21
SECTION 204- REVOCATION WHERE
AUTHORITY HAS BEEN PARTLY EXERCISED
Section 204 of the Indian Contract Act reads as following:
The principal cannot revoke the authority, given to his agent
after the authority has been partly exercised so far as regards such
acts and obligations as arise from acts already done in the agency.
The rule in this section is connected with the principal’s duty to
indemnify the agent under Sec 222 below. ‘If a principal employs
an agent to do something which, by law, involves the agent in a
legal liability’- or even in a customary liability by reason of usage in
that class of transactions known to both agent and principal- the
principal cannot draw back and leave the agent to bear the liability
at his own expense.’49 To the extent the authority has been partly
exercised, the agent is entitled to his remuneration and to
indemnity. Thus, in Prickett v. Badger50 where an agent was
employed to sell land at a certain price, and he found a purchaser,
and the owner reused to sell and revoked the agent’s authority, the
agent was entitled for reasonable remuneration for his work and
labour upto that date.
Although the section seeks to protest ‘such acts and obligation as
arise from acts already done in an agency, the illustration indicates
that the section seeks to protect the acts done, and obligations
arising from such acts. The Law Commission recommended
amending the act to that effect.51
49 Read v. Anderson, [1881-85] All ER Rep 1104.50 (1856) 1 CBNS 29651 Thirteenth Report of the Law Commission of India 1958, para 160.
22
No revocation where authority partly exercised52- A revocation of
authority is in operative with regard to obligations already
incurred. But, where the agent continues for forbidden transactions
in spite of the revocation of his authority, the principal cannot turn
round and claim the benefit of it.53
52 Day v. Wells, (1861) 54 ER 872; Burn v. Carvalho, (1239) 41 ER 26553 Harihar Prasad v. Kesho Prasad, (1925) Pat 68.
23
SECTION 205- COMPENSATION FOR
REVOCATION BY PRINCIPAL OR
RENUNCIATION BY AGENT
Sec. 205 of the Indian Contract Act reads
Where there is an express or implied contract that the agency
should be continued for any period of time, the principal must make
compensation to the agent, or the agent to the principal, as the
case may be, for any previous revocation or renunciation of the
agency without sufficient cause.
Premature revocation or renunciation- This section provides for
payment of compensation by principal to agent of vice versa in
cases where the agency is terminated or renounced contrary to an
express or implied contract that it should be continued for a fixed
period.54 Though the employment is for a fixed term and no right to
terminate it exists, such employment may be terminated before the
expiry of the term subject to liability to pay compensation if the
discharge was without sufficient cause.55 Where a principal without
reasonable cause terminates the agency prematurely, he refuses to
perform his part of the contract and prevents performance by the
agent. So, he will be liable in damages to the agent. Thus where the
plaintiff undertook to dispose of the shares of a company on certain
terms as to remuneration, and before he could do it, proceedings
were started for winding up, it was held that the plaintiff was
prevented from performance of his part of the contract and was
therefore entitled to compensation.56 But in the case of an agency
54 State of Kerela v. G.L.KIlkara, 1966 Ker Lj 48755 Vishnucharya v. Ramachandra, (1881) 5 Bom 253.56 Inchbold v. Western Nilgherry Coffee Co., (1864) 144 ER 293
24
for of coal for a certain period, where the principal sold away his
business before the term, the court held that there was no implied
term that the principal must carry on the business for a certain
period.57 The interest of a Commercial Agent in England is
improved and protected by virtue of Commercial Agent (Council
Directive) Regulation, 1993. Regulation 17 entitles a Commercial
Agent for compensation in the event of his agreement being
terminated prematurely by the principal. In Page v. Combined
Shipping & Trading Co. Ltd.,58 the plaintiff whose agency
agreement was terminated by the defendant company before the
stipulated period of four years was held to be entitled to
compensation for the loss of commission with proper performance
of agency contract would have earned to him.
“Sufficient Cause”- An absolute power of revocation of contract
cannot be validity reserved in favour of one of the parties.59 It is
only where the agency is terminated without sufficient cause that
the liability t opay compensation arises. In Boulton Bros. & Co. v.
New Victoria Mills Co.,60 one company as principal, appointed
another company as agent under a mistaken impression as to the
latter’s influence in commercial circles, and on discovering the
mistake, revoked the agency. It was held that there was sufficient
cause for revoking the agency. Similarly, where the agent suffers
incapacity, physical or mental,61 or where he lacks reasonable
diligence or skill or is guilty of misconduct, there will be sufficient
cause for revocation. In cases of misconduct, it is a question of fact
57 Rhodes v. Forwood, (1876) 1 AC 256.58 (1997) 3 All ER 656 (CA)59 International Oil Co. v. Indian Oil Co. Ltd., AIR 1969 Mad 423; Thathaiah M & S.M. Railway, ILR (1957) Mad 21560 (1929) 26 ALJ 111961 Cuckson v. Stones, (1858) 120 ER 902
25
whether it is so inconsistent with the fulfillment of the conditions of
service as to justify dismissal.62
62 Clouston v. Corry , (1906) AC 122; Pearce v. Foster, (1886) 17 QBD 536.
26
SECTION 206- NOTICE OF REVOCATION OR
RENUNCIATION
Sec 206 of the Indian Contract Act reads as following
Reasonable notice must be given of such revocation or
renunciation; otherwise the damage thereby resulting to the
principal or the agent, as the case may be, must be made good to
the one by the other.
The section provides that if the notice of revocation or renunciation
is not reasonable, the party receiving it will be entitled to claim
compensation for the damage resulting by such notice.
The opinion of the high courts are divided as to whether the words
‘such revocation or renunciation’ occurring in this section apply
only to Sec. 205 or does it apply to every renunciation or
revocation.
One view is that the words refer to the contract mentioned in Sec.
203 and is not restricted to agencies for specified period only. In
Shaw Wallace & Co.63 it was stated:
If the phrase ‘such revocation or renunciation is to be taken
as referring back to Sec. 205, I confess that I find no meaning in
the section and it is at least arguable that what the draftsmen
meant to say is that when there is no express or implied contract
that the agency should continue for any fixed period reasonable
notice must be given of the revocation or renunciation of the
agency.
63 AIR 1931 Cal 676
27
The other view is that those words refer only to the types of
contracts referred in Sec. 205;64 and that reasonable notice is
necessary where an agency is not for a fixed period.65 The Law
Commission of India recommended that this section should apply
only when there is no period of agency expressly or impliedly fixed
by the contract.66
Reasonable notice is a mandatory requirement under Sec. 206 for
termination of tenancy. When reasonable notice is a necessary sine
qua non for snapping the jural relationship of principal and agent, it
necessarily follows that renunciation of the agency without notice
would be clearly illegal.67
64 Bright Bros Pvt. Ltd. v. JK Sayani, AIR 1976 Mad 55.65 Sorabji Dhunjibhoy Medora v. Oriental Govt. Security Life Assurance Co Ltd., AIR 1944 Bom 166 (two years was reasonable).66 Thirteenth Report of the Law Commission of India 1958, para 162 recommended substituting the existing section as follows:206. Notice or revocation or renunciation where there is no fixed period or agency-Where there is no express or implied contract that the agency should be continued for any period of time, reasonable notice must be given of any revocation or renunciation of the agency by the principal or the agent, as the case may be; otherwise the damage thereby resulting to the agent or the principal, as the case may be, must be good to the one by the other.67 Popular Shoe Mart v. K Srinivasa Rao, AIR 1990 NOC 87 (AP).
28
SECTION 207- REVOCATION AND
RENUNCIATION MAY BE EXPRESSED OR
IMPLIED
Sec. 207 of the Indian Contract Act reads as following
Revocation and renunciation may be expressed or may be
implied in the conduct of the principal or agent respectively.
The revocation may be made expressly, or may be implied from the
conduct of the parties. It is a question of fact in each case whether
an agency has, infact, been revoked or terminated.68
Conduct of the principal inconsistent with the continuance of the
agency will determinate the agency, viz where the principal sells off
the subject matter of agency.69 Thus, an agency for the
management of immovable property would stand terminated when
the property is transferred.70
Renunciation by an agent may be express, viz by tendering
resignation of agency;71 or may be implied, viz from ceasing to
discharge his duties, and departing from the principal’s service.72
In Re E, X v. Y73 a donor of a power of attorney gave powers to two
of his three daughters, but denying them to sell, charge or lease
any land. Later he executed a new power of attorney making all
three as attorneys, providing that any two could sign, but with no
restrictions on authority. It was held that the later document did 68 PMARm Muthiah Chettiar v. AVA Chidambaram Chetti, AIR 1918 Mad 1200.69 EP Nelson & Co. v. Rolfe, [1949]2 All ER 584 (CA)70 Sures Kanta Banerjee v. Nawab Ali Sikdar, AIR 1916 Cal 80071 Kinattikara Madhavan Nair v. MR Rly Manavikram Zamorin Maharajah Avergal, AIR 1928 Mad 90672 MSA Pl Palaniappa Chetty v. T Mr Alagappa Chetty, AIR 1916 Mad 110473 [2000] 3 All ER 1004
29
not revoke the earlier one, as it attempted only to add the third
daughter. Conduct would amount to revocation only if it was
inconsistent with the continuation of the agency; and it could only
be inconsistent if it was unambiguous in its effect.
30
SECTION 208-WHEN TERMINATION OF
AGENT’S AUTHORITY TAKES EFFECT AS TO
AGENT, AND AS TO THIRD PERSON
Sec. 208 of the Indian Contract Act reads as following:
The termination of the authority of an agent does not, so far
as regards the agent, take effect before it becomes known to him,
or, so far as regards third person, before it becomes known to
them.
Revocation when takes effect- The policy of law, apparently in
the interests of trade and commerce, is that the agent’s action
should bind the principal even though the principal might have
cancelled the agent’s authority unless the third person with whom
the agent enters into contracts knew of the termination of the
agency.74 This section merely enunciates the rule of commonsense
that revocation or termination of an agent’s authority must be
communicated to the parties concerned before it can have legal
validity. When the principal revokes the authority by giving a notice
to the agent, such agent has no right to remain in possession of the
premises of the principal after the termination of agency.75 In this
connection, reference may usually be made to Sec. 3 of the Power
of Attorney Act, which provides:
“Any person making or doing any payment or act in good faith
in pursuance of power of attorney shall not be liable in
respect of the payment or act by reason that, before the
payment or act, the donor of the power had died or become
lunatic, or of unsound mind, or bankruptcy or insolvent, or
74 Kathoom Bivi v. Arulappa Nadar, AIR 1970 Mad.76; Kulsekarapatnam Hand Match Workers’ Co-operative Cottage Industrial Society Ltd. v. Radhelal Lallolal, AIR 1971 MP 19175 Southern Roadways Ltd., Madurai v. S.M.Krishnan, AIR 1990 SC 673
31
had revoked the power, if the fact of death, lunacy,
unsoundness of mind, bankruptcy, insolvency or revocation
was not at the time of the payment or act known to the person
making or doing the same.”
AS AGAINST THIRD PARTIES
The fact that the agent is aware of the revocation of his authority
will not affect third parties who deal with him in ignorance of such
revocation. Thus payment of a debt to agent whose authority is
subsequently discovered to have been revoked is good payment so
as to support a plea of discharge as against the creditor.76 So too,
where a creditor takes acknowledgement of a debt from an agent in
ignorance of the termination of the agent’s authority, by the death
of the principal such acknowledgement will be valid as against the
debtor.77 Similarly, the registration of deed, in ignorance of the fact
of revocation of authority to register it, has been held to be valid.78
Where the defendant land owner executed GPA in respect of his
land property and subsequently revoked it, sale deed executed by
GPA holder by production certified copies of latest power of
attorney without bearing an endorsement of revocation in favour of
the plaintiff who purchased the property in bona fide belief without
the knowledge of revocation of power of attorney shall be binding
on the principal (defendant owner).79
Where after revocation of authority by the principal (land owners)
the third party was put in possession of disputed land for the money
received from him and later the principal endorsed the execution of
document by the agent in favour of the third party, the delegation
76 Narasinga v. Muthusami Naliker, (1897) 7 MLJ 21877 Ebrahim v. Chunilal, (1911) 35 Bom 30278 Maung Lu Gale v. U. Po Hlaing,(1934) Ran. 104; Ma Byaw v. Mg Tun Hlaing, (1934) Ran 341, Mohendra v. Kail Prasad, (1903) 30 Cal.26579 N.S.Srinivas v. Madduri Mallareddy, AIR 2005 AP 177.
32
of the authority of the agent cannot be questioned in the absence of
any document on record or any other means to show that the
respondent third party can be aware of the factum of revocation of
agency.80
The knowledge of the agent about the cancellation of the agency is
not binding on the third parties and the transactions entered into
by the third parties with the agent shall be binding on the principal
until it has been established that the third parties had knowledge
about the termination of agency.
But, express or actual notice of revocation is not necessary; it will
be sufficient if they somehow get knowledge of the revocation.81
80 Kashi Ram & anr v.Raj Kumar & Ors., AIR 2000 Raj. 405,40681 Dasarath v. Brojo Mohan, (1914) 18 CLJ 621.
33
SECTION 209- AGENT’S DUTY ON
TERMINATION OF AGENCY BY PRINCIPAL’S
DEATH OR INSANITY
Sec. 209 of the Indian Contract Act reads
When an agency is terminated by the principal dying or
becoming of unsound mind, the agent is bound to take, on behalf of
the representatives of his late principal, all reasonable steps for the
protection and reservation of the interest entrusted to him.
Duty to protect principal’s interest.- In case of the death or
insanity of the principal, the law casts a duty on the agent, though
the may be aware of the death or insanity, to conserve and protect
the interest entrusted to him, for and on behalf of the
representatives of the deceased principal.82 To this limited extent
the rule enunciated in the section is an exception to the general
rule that agency terminates with the death or insanity of the
principal. An illustration is afforded by a Lahore case where a
contract by an agent for the supply of molasses for the purpose of
keeping a distillery going was held, a reasonable step taken for the
preservation of the deceased, ’principal’s estate.83
82 Venkateshwar Iyer’s, The Law of Contracts-2, 10th ed., P. 655.83 Moosajee Ahmad & Co v. Adm. General, Bengal, (1921) 3 LLJ 265.
34
SECTION 210- TERMINATION OF SUB-AGENT’S
AUTHORITY
Sec. 210 of the Indian Contract Act reads
The termination of the authority of an agent causes the
termination (subject to the rules herein contained regarding the
termination of agent’s authority) of the authority of all sub-agents
appointed by him.
Where the agency terminated, the authority of all sub-agents
appointed by such agent also terminates.
The authority of the sub-agent depends only on that of the main
agency;84 and hence, if the agency is terminated, the sub-agency
also stands terminated. This does not apply to a substituted agent.
There may be cases where a substitute rather than a sub-agent has
been appointed, and there appears, by express agreement or by the
nature of the case an intention that his authority shall not be
determined when that of the original agent is revoked.85
84 Lakshmandas Khandelwal v. Raghumull, AIR 1919 PC 4985 Pollock &Mulla, MULLA Indian Contract and Specific Relief Acts- II, 13th ed., P. 211.
35
CONCLUSION
Sec. 201-210 deals with the termination of agency. The principal
may revoke the real authority of his agent or
the agent may terminate his authority by renunciation or
revocation at any time. If the revoking party has previously agreed
not to do so, the revocation remains valid, but the other party may
maintain a breach of contract action against him. An agency is
terminated by the Principal revoking 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 relief of insolvent debtors.
A major exception to the principal’s power of revocation occurs
when the agent possesses “authority coupled with an
interest.” Here the agent who has part ownership in
something that is to be disposed of also has power to dispose of his
principal’s remaining interest in this thing. Such a power for the
purpose of effectuating any security or of protecting or securing
any interest of the agent cannot be revoked without the
agent’s consent.
36
BIBLIOGRAPHY
1. Avtar Singh, “Law of Contract and Specific Relief”, 9th edition,
Eastern Book Company, Lucknow, 2006
2. J. Beatson, Anson’s Law Of Contract, 28th (edn)., Oxford
University Press, New Delhi, 2002
3. M.K.Nair, The Law Of Contracts, Eastern Book Company,
Lucknow, 1997
4. Pollock and Mulla, Indian Contract and Specific Relief Acts,
Vol.2, R.G.Kapadia(Ed.), 13(edn.), Lexis Nexis, New Delhi,
2006
5. T.S. Venkatesa Iyer’s, The Law of Contracts & Tenders-2, 9th
ed., S.Gogia & Company, Hyderabad.
37