Termination of Agency under Sections 201 to 210 of the Indian Contract Act, 1872: The Modes of Termination, Agency Coupled With an Interest, Revocation and Its Limits, and When Termination Takes Effect

An agency ends in one of six ways under Section 201, and the sections that follow work out the consequences. Two questions dominate. The first is when the principal may revoke: the general answer is at any time before the authority has been exercised, but that is subject to acts already done, to a requirement of reasonable notice, to compensation where the agency was for a fixed period, and to the important exception for an agency coupled with an interest. The second is when termination takes effect, and Section 208 gives a different answer for the agent and for third parties, which is what protects people who deal with an agent in ignorance that his authority has gone.

The five ways an agency ends, the limits on revocation, and when it bites

1. The Modes of Termination

Section 201, Indian Contract Act, 1872

Termination of agency. 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.

Mode	How it operates	Qualifications
Revocation by the principal	A unilateral withdrawal of the authority	Subject to Sections 202 to 206: not against an agency coupled with an interest, not as to acts already done, with reasonable notice, and with compensation where the agency was for a fixed period
Renunciation by the agent	A unilateral abandonment of the business of the agency	The same requirements of notice and compensation apply, under Sections 205 and 206
Completion of the business	The agency ends automatically when its purpose is achieved	Where the agency covers a series of transactions it continues until the series is complete
Death of either party	Operates automatically	Section 209 requires the agent to protect the principal's interests; Section 202 may keep the agency alive
Unsoundness of mind of either party	Operates automatically	The same qualifications apply
Insolvency of the principal	On adjudication under the applicable insolvency law	Insolvency of the agent is not listed and does not by itself terminate the agency, though it may make him unfit

2. Agency Coupled With an Interest

Sections 202 and 203, Indian Contract Act, 1872

202. Termination of agency where agent has an interest in subject-matter. 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.

Illustration (a). A gives authority to B to sell A's land, and to pay himself, out of the proceeds, the debts due to him from A. A cannot revoke this authority, nor can it be terminated by his insanity or death.

Illustration (b). A consigns 1,000 bales of cotton to B, who has made advances to him on such cotton, and desires B to sell the cotton, and to repay himself out of the price the amount of his own advances. A cannot revoke this authority, nor is it terminated by his insanity or death.

203. When principal may revoke agent's authority. 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.

📖 Smart v. Sandars, (1848) 5 CB 895

Facts: Factors received consignments of wheat from their principal for sale. After the goods had been consigned to them, they made advances to the principal on the security of the wheat. The principal afterwards instructed them not to sell below a stated price. The factors sold below that price, asserting that their authority had become irrevocable because they had a lien on the goods for their advances.

Held: The sale was wrongful. A mere authority to sell, coupled with a subsequent advance, is not an authority coupled with an interest. To be irrevocable the authority must have been given as part of a security arrangement, that is the interest must have existed at the time the authority was conferred and the authority must have been given for the purpose of protecting or realising that interest. Here the authority to sell was given first and the advances came later, so the principal's instructions remained binding.

Ratio: An agency is irrevocable only where the agent's interest in the subject matter existed when the authority was given and the authority was conferred as part of the security. An interest acquired afterwards does not make an ordinary authority irrevocable.

⚠ The interest must be in the subject matter, not in the remuneration

Two conditions confine Section 202 and both are regularly overlooked. The interest must be in the property which forms the subject matter of the agency, so an interest merely in the commission the agency will generate is not enough; every agent has that, and if it sufficed no agency would ever be revocable. And the interest must have existed when the authority was given, as part of the arrangement, which is the holding in Smart v. Sandars. Where the section does apply, its effect is powerful: the agency survives revocation, and survives the principal's death and insanity as well, as both Illustrations state expressly.

3. The Limits on Revocation

Sections 204 to 207, Indian Contract Act, 1872

204. Revocation where authority has been partly exercised. 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.

Illustration (a). A authorises B to buy 1,000 bales of cotton on account of A, and to pay for it out of A's moneys remaining in B's hands. B buys 1,000 bales of cotton in his own name, so as to make himself personally liable for the price. A cannot revoke B's authority so far as regards payment for the cotton.

205. Compensation for revocation by principal, or renunciation by agent. 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.

206. Notice of revocation or renunciation. 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.

207. Revocation and renunciation may be expressed or implied. Revocation and renunciation may be expressed or may be implied in the conduct of the principal or agent respectively.

Section 203 fixes the general rule: revocation is possible at any time before the authority has been exercised so as to bind the principal.
Section 204 protects acts already done. Once the agent has acted and obligations have arisen, the authority cannot be revoked so far as those obligations are concerned. Illustration (a) shows an agent who has made himself personally liable, and the principal cannot withdraw the authority to pay.
Section 205 requires compensation where the agency was to continue for a period and is revoked or renounced early without sufficient cause. The obligation runs both ways.
Section 206 requires reasonable notice in every case, and a party who gives none must make good the resulting damage. What is reasonable depends on the nature of the agency and the commitments the other party has entered into.
Section 207 permits revocation or renunciation by conduct, so a principal who appoints another agent to do the same work, or who himself completes the transaction, may have revoked by implication.

4. When Termination Takes Effect: Section 208

Section 208, Indian Contract Act, 1872

When termination of agent's authority takes effect as to agent, and as to third persons. 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 persons, before it becomes known to them.

Illustration (a). A directs B to sell goods for him, and agrees to give B five per cent commission on the price fetched by the goods. A afterwards, by letter, revokes B's authority. B, after the letter is sent, but before he receives it, sells the goods for Rs. 100. The sale is binding on A, and B is entitled to five rupees as his commission.

(c). A directs B, his agent, to pay certain money to C. A dies, and D takes out probate to his will. B, after A's death, but before hearing of it, pays the money to C. The payment is good as against D, the executor.

Section 208 is a protective provision and the two Illustrations show both halves of it. Illustration (a) protects the agent, who acted in ignorance of a revocation already despatched and is entitled to his commission. Illustration (c) protects a payment made in ignorance of the principal's death, which is otherwise an automatic termination. The practical consequence for a principal who revokes is that he must bring the revocation to the notice of third parties as well, ordinarily by public notice or by direct communication to those who have dealt with the agent, or he will remain bound under Sections 208 and 237.

📖 Campanari v. Woodburn, (1854) 15 CB 400

Facts: The plaintiff was employed to sell a picture, on terms that he would be paid one hundred pounds if he succeeded in selling it. The principal died before any sale took place. The plaintiff afterwards sold the picture, and the principal's widow, as administratrix, received the proceeds. He sued for his hundred pounds.

Held: The agency was terminated by the principal's death, and the sale made afterwards was not made under the original authority; the plaintiff could not recover the agreed sum on the original contract. He was, however, entitled to be paid for what he had done, the administratrix having adopted the transaction and taken the proceeds.

Ratio: The death of the principal terminates the agency automatically, and acts done afterwards are not done under the authority. The agent's remedy, where the estate takes the benefit, lies in a claim for what he has earned rather than on the original agreement.

5. Sections 209 and 210

Sections 209 and 210, Indian Contract Act, 1872

209. Agent's duty on termination of agency by principal's death or insanity. 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 preservation of the interests entrusted to him.

210. Termination of sub-agent's authority. The termination of the authority of an agent causes the termination, subject to the rules herein contained regarding the termination of an agent's authority, of the authority of all sub-agents appointed by him.

Section 209 imposes a residual duty that survives the agency itself, and it is the counterpart of the agency of necessity: the agent must preserve what was entrusted to him until the representatives can take over. Section 210 makes the sub-agent's authority derivative, so it falls with the agent's, subject to the same rules, which imports Section 208; a sub-agent who acts in ignorance of the termination is protected on the same footing.

6. Irrevocable Agencies

Agency coupled with an interest, under Section 202, which survives revocation, death and insanity.
Where the authority has been partly exercised, under Section 204, so far as regards obligations already arising.
Where the agent has incurred a personal liability in the course of the agency, which is the situation in Illustration (a) to Section 204.
Where an express contract provides for irrevocability, which Section 202 contemplates by the words in the absence of an express contract, though such a clause cannot make an agency irrevocable where no interest exists if the arrangement is in substance a mere authority.
A power of attorney given for consideration and expressed to be irrevocable is governed by the Powers of Attorney Act, 1882, which preserves its operation in the circumstances that Act provides for.

7. The Position Stated Shortly

Section 201 lists six modes: revocation, renunciation, completion, death, unsoundness of mind, and the principal's insolvency.
Section 203 permits revocation at any time before the authority has been exercised so as to bind the principal.
Section 202 makes an agency coupled with an interest irrevocable to the prejudice of that interest, and it survives death and insanity.
Smart v. Sandars: the interest must have existed when the authority was given and the authority must have been conferred as part of the security.
An interest merely in the remuneration is not enough, since every agent has that.
Section 204 prevents revocation as regards obligations arising from acts already done.
Section 205 requires compensation for early revocation or renunciation without sufficient cause where the agency was for a period, and the obligation runs both ways.
Section 206 requires reasonable notice, and Section 207 permits revocation or renunciation by conduct.
Section 208 makes termination effective against the agent only when known to him, and against third persons only when known to them.
Campanari v. Woodburn: the principal's death terminates the agency automatically, and the agent must look to a claim for what he has earned.
Section 209 requires the agent to preserve the interests entrusted to him on the principal's death or insanity, and Section 210 terminates the sub-agent's authority with his own.

8. Related Topics and Provisions

Topic or provision	Connection
Agency under Sections 182 to 238	Creation, capacity and authority
Delegation and Sub-Agency under Sections 190 to 195	The sub-agent whose authority falls under Section 210
Principal and Third Parties under Sections 226 to 238	Why notice of revocation must reach third parties
Rights of the Agent under Sections 217 to 225	Compensation and remuneration on termination
Sections 201 to 210, Indian Contract Act	Termination of agency
Section 237, Indian Contract Act	Holding out, and the risk of failing to notify third parties
Section 189, Indian Contract Act	Emergency authority, and its relationship with Section 209
Powers of Attorney Act, 1882	Irrevocable powers given for consideration