Termination of agency - Contract II

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1. Section 201
2. Modes of termination
3. Irrevocable agency: section 202
4. Revocation after partial exercise: sections 203 and 204
5. Compensation and notice: sections 205 to 207
6. When termination takes effect: section 208
7. Sub-agents: section 210
8. Problem
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The plan of the answer. Section 201 lists the modes. Section 202 makes the one big exception: an agency coupled with interest cannot be revoked to the agent's prejudice. Sections 203 to 207 regulate revocation by act of parties, and section 208 protects the agent and third parties who have not yet heard of the termination. Group the modes under two heads, act of the parties and operation of law.

1. Section 201

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 law for the time being in force for the relief of insolvent debtors.

2. Modes of termination

(a) By act of the parties.

Agreement. Principal and agent may end the agency by mutual consent at any time.
Revocation by the principal. Subject to sections 202 to 205, the principal may revoke. It may be express or implied by conduct (section 207). Illustration: A empowers B to let A's house. Afterwards A lets it himself. This is an implied revocation of B's authority.
Renunciation by the agent. The agent may renounce, again subject to compensation and notice under sections 205 and 206.

(b) By operation of law.

Completion of the business of the agency.
Expiry of time, where the agency was for a fixed period.
Death or unsoundness of mind of either principal or agent.
Insolvency of the principal. (Insolvency of the agent does not by itself end the agency under section 201, though it may make him unfit to act.)
Destruction of the subject-matter, such as the house the agent was to sell.
Principal becoming an alien enemy, or the agency becoming unlawful.
Dissolution of a company or firm that is principal or agent.

3. Irrevocable agency: section 202

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 is an agency coupled with interest. Such an agency is not ended by the principal's revocation, death, insanity or insolvency.

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 the cotton, and desires B to sell it and repay himself out of the price the amount of his advances. A cannot revoke this authority, nor is it terminated by his insanity or death.

Two conditions are usually drawn from the section. The interest must exist at the time the agency is created; an interest acquired later does not make the agency irrevocable. And the agent's expectation of commission or remuneration is not an interest in the subject-matter. The Supreme Court applied section 202 in Loon Karan Sethia v. Ivan E. John, 1976 INSC 253, holding that an authority given to an agent to secure his own interest could not be revoked to his prejudice.

4. Revocation after partial exercise: sections 203 and 204

Section 203: the principal may, save as provided in section 202, revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal.

Section 204: the principal cannot revoke the authority after it has been partly exercised, so far as regards such acts and obligations as arise from acts already done in the agency. Illustrations:

(a) A authorises B to buy 1,000 bales of cotton on A's account and to pay for them out of A's money in B's hands. B buys the 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.
(b) The same facts, but B buys the cotton in A's name, so as not to make himself personally liable. A can revoke B's authority to pay for the cotton.

5. Compensation and notice: sections 205 to 207

Section 205. 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, for any previous revocation or renunciation of the agency without sufficient cause. Misconduct by the agent is sufficient cause for the principal; ill-treatment by the principal may be for the agent.

Section 206. Reasonable notice must be given of such revocation or renunciation; otherwise the damage thereby resulting to the principal or the agent must be made good to the one by the other.

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

6. When termination takes effect: section 208

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. 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 Rs 5 as commission.

The same rule protects third parties dealing with a former agent who still appears to have authority. A principal who dismisses an agent should therefore notify those who dealt with the agent; until they know, the principal remains bound under sections 208 and 237.

Section 209. 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.

7. Sub-agents: section 210

The termination of the authority of an agent causes the termination, subject to the rules regarding termination of an agent's authority, of the authority of all sub-agents appointed by him. A substituted agent under section 194 is the principal's own agent, so his authority does not end merely because the agent who named him ceases to act.

Trap. Section 202 says the agency cannot be terminated “in the absence of an express contract”. The parties can therefore agree at the outset that even an agency coupled with interest may be revoked. And a power of attorney described as “irrevocable” is not irrevocable if the agent has no interest in the subject-matter: the label does not create the interest.

8. Problem

A owes B Rs 10 lakh. He gives B a power of attorney to sell A's flat and repay himself out of the sale price. Before B finds a buyer, A dies. A's heirs tell B that the agency has ended. Are they right?

Issue. Whether an agency coupled with interest is terminated by the principal's death.

Law. Section 201 ordinarily ends an agency on the principal's death. Section 202 excepts an agency in which the agent has an interest in the subject-matter; illustration (a) is close to these facts.

Application. B's interest, the right to be repaid from the sale price, existed when the power was given and is in the very property to be sold. There is no express contract allowing revocation.

Conclusion. The heirs are wrong. B's authority survives A's death and B may sell the flat and repay himself, accounting to the heirs for any surplus.

How this is examined

“Explain the modes of termination of agency” was set in January 2026 and is a standard 10-mark question. Write section 201, the two heads, section 202 with both illustrations, sections 203 to 206, and section 208 with its illustration. “When is an agency irrevocable?” is a frequent short note, answered from sections 202 and 204.