Chapter-15
Agency
LIST OF SECTIONS TO BE DISCUSSED IN THIS CHAPTER
SECTION NUMBER
182
183
184
185
186
187,188&189
190
191,192&193
196-200
201
202
203
204
211
212
213
214
215
216
217&218
219&220
221
222
223
225
227&228
231&233
235&236
SECTION NAME
MEANING OF AGENT AND PRINCIPAL
PRINCIPAL SHOULD BE COMPETENT TO CONTRACT
AGENT MAY NOT BE COMPETENT TO CONTRACT
NO CONSIDERATION IS NECESSARY TO CREATE AN AGENCY
AGENT’S AUTHORITY MAY BE EXPRESSED OR IMPLIED
EXTENT OF AGENT AUTHORITY
DELEGATION OF AUTHORITY
SUB AGENT
AGENCY BY RATIFICATION
TERMINATION OF AGENCY
IRREVOCABLE AGENCY
TERMINATION OF AGENCY
IRREVOCABLE AGENCY
DUTY TO FOLLOW PRINCIPAL’S INSTRUCTION AND THE CUSTOM
DUTY TO EXERCISE REASONABLE DILIGENCE AND SKILL
DUTY TO MAINTAIN BUSINESS SECRETS OF PRINCIPAL
DUTY TO COMMUNICATE
DUTY NOT TO DEAL ON HIS OWN ACCOUNT
DUTY NOT TO MAKE SECRET PROFIT
DUTY TO REMIT PRINCIPAL’S MONEY
RIGHT TO RECEIVE REMUNERATION
RIGHT OF LIEN
RIGHT OF INDEMNITY
RIGHT OF INDEMNITY FOR THE ACTS DONE IN GOOD FAITH
RIGHT OF COMPENSATION
PRINCIPAL’S LIABILITY FOR ACTS OF AGENTS
UNDISCLOSED PRINCIPAL
PRETENDED AGENT
15.1 Meaning of Agent Principal and Agency Section 182
Meaning of agent
Section 182
Meaning of principal
Section 182
Meaning of Agency
Classes at I.G.P
An agent is a person employed –
 to do any act for another. or
 to represent another in dealing with third parties.
The person for whom -:
 such act is done, or
 who is so represented is called the principal.
 The term agency denotes a relationship between two persons wherein one is
called a ‘principal’ and the other an ‘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)
The agent may not be
competent to contract
(Section 184)
No consideration is
necessary to create an
agency (Section 185)
PAST
ATTEMPT
QUESTIONS
 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.
 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.
 Section 185 provides that no consideration is necessary to create an agency.
Q1.
Q2.
Q3.
A minor cannot be appointed as an agent [CA PCC NOV. 2007]
No consideration is necessary to create an Agency. [CA IPCC NOV. 2010]
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]
Classes at I.G.P
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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  Agency relationship may be created by an express agreement between the
agent & the principal.
Agreement

Under, express agreement agent may be appointed either by words of mouth
Section
or by an agreement in writing.
Agency implied from circumstances
Agency by estoppel  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
Section 237
Agency by holding
out


Agency by
necessity


Agency by
operation of law

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.
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.
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.
Sometimes an agency arises by operation of law.
Agency by Ratification - : Sec 196 -200
Meaning of agency  Ratification means the subsequent adoption and acceptance of an act
originally done without instruction or authority.
by ratification

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 has got retrospective effect. By ratifying the unauthorized act of the
Ratification
tantamount to prior 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
authority
original making of the contract.
Essentials of a valid ratification:- A valid ratification must fulfill the following conditions
Prinicipal must be  The agent must expressly contract as an agent for a principal in the knowledge
of third parties.
indentifiable
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Agency
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.
 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.
 The principal must have contractual capacity both at the time of the contract and
at the time of ratification.
 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 done within a reasonable time, of the act to be ratified.

Existence of
principal
Competence of
principal
Full knowledge of
Facts
Ratification must be
within a reasonable
time
The act to be ratified
must be lawful
The whole
transaction can be
ratified
Ratification must not
injure a third person
Section 200
Ratification can be of
the acts which the
principal had the
power to do
PAST
ATTEMPT
QUESTIONS
Classes at I.G.P
The act to be ratified must be a lawful one.
 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 cannot be effective when its effect is to subject a third person to
damages or terminate any right or interest of a third person.
The acts which the principal is incapable of doing cannot be ratified.
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

This is the authority that the principal has actually delegated to the agent. This
Real Authority
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

Ostensible authority means an authority which the third parties dealing with
Apparent Authority
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
An agent has authority in an emergency; to do all such acts for the purpose of
Emergency Section
protecting his principal from loss as would be done by a person of ordinary
189
prudence in his own case, under similar circumstances.

15.6 Kinds of Agent :- Various Types of agent can be studied as follow
General Agent

Universal Agent

Special Agent

Classes at I.G.P
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.
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.
A special agent is one who is employed to do some particular act or represent
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Agency
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 
Subagent is a person employed by and acting under the control of the original
Section 191
agent in the business of the agency. Thus a person employed by an agent is
called a subagent.
Substituted Agent 
An agent may be entrusted by the principal with the task of finding &
Section 194
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 General Rule
a sub – agent so as to  An agent cannot appoint a subagent by delegation to him the authority that
delegate his
was given to him by the principal.
authority
 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.
Classes at I.G.P
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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
Consequences of
appointing a subagent Section 192 &
193
A subagent is a person

Employed by; and

Acting under the control of the original agent in the business of the agency.
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

An agent is bound to conduct the business of his principal according to the
principal’s
direction given by the principal or in the absence of any such directions
instructions and the
according to the custom which prevails in doing business of same kind at the
Classes at I.G.P
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customs
place where the agent conducts such business.
To exercise
reasonable diligence
and skill
To maintain
business secrets of
principal
To maintain and
render accounts

Right to receive
rumenration –
Section 219 & 220
Right of Retainer –
Section 217


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.

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.

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

Agency is a fiduciary relationship. The agent must always maintain good faith
own account
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
Another expectation from an agent is that he should not use the agency works to
profits
acquire such additional gains for himself which the principal has not sanctioned
expressly or impliedly.
To remit principal’s An agent is required to remit to the principal all sums received on principal’s
money
account after deducting his own lawful claims due on the principal for
remuneration
Not to delegate
Since agency is a personal relationship between principal & agent, the agent should
authority
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 of lien –
Section 221
Classes at I.G.P
An agent has the right to receive remuneration.
If the rumenration is not fixed, then such rumenration as is usual & customary
in such business.
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.

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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Right of indemnity
Section 222.
Right to
compensation
Section 225
Right of stoppage of
goods in transit
PAST
ATTEMPT
QUESTIONS
Agency
property can be retained in relation to which claim is due.
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.
The principal must make compensation to his agent in respect of injury caused to
such agent by principal’s negligence or want of skill.
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.
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  When an agent has done an act which does not fall within any type of authority,
beyond his 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
Liability of
unnamed principal
Liability of agent -:
Classes at I.G.P
Unnamed principal means a principal whose existence is dis closed by the agent but
the name is not disclosed.
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.
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
Rules in case of
undisclosed
principal
Rights of third party
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.
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.
 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,
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 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
expressly agrees
Where the agent
acts for a foreign
principal
Where the agent
acts for an
Classes at I.G.P
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 the agent
acts for a principal
who cannot be sued
Where the agent
exceeds his
authority
Where there is a
trade usage or
custom
Where agent’s
authority is coupled
with interest
PAST
ATTEMPT
QUESTIONS
Agency
Where an agent acts for an undisclosed principal & contracts in his own name he is
personally liable to the third party.
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).
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).
An agent also incurs personal liability where there is a trade usage or custom to that
effect.
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.
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  Where the agent has himself an interest in the subject matter of agency, the
agency is said to be coupled with interest.
is coupled with
 An agency coupled with interest cannot be terminated to the extent of such
interest Section
interest. In other words where the agent has himself an interest in the property
202.
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.
If
the
agent has exercised his authority to some extent, the principal cannot take
Where agent has
away the agent’s authority for at least such acts & obligations which arise out of the
partly exercised
acts already done by the agent.
his authority –
Sec. 204.
Where agent
incurs a personal
liability under
agency
PAST
ATTEMPT
QUESTIONS
Classes at I.G.P
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.
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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Agency
(a)
(b)
(c)
(d)
Agency by estoppel
Agency by holding out
Agency by necessity
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
Modes of
termination of
Agency
Termination by
Acts of parties
Termination by
operation of Law
Like any contractual relationship an agency can also come to an end. This would be
called 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
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.
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
Insolvency of
principal

Death of principal or agent will terminate the personal relationship that the two had
created in the form of agency.
Expiry of time
Supervening
Impossibility
Classes at I.G.P
When the principal is adjudicated as insolvent by court he becomes incapable
to assume fresh legal obligations ands therefore agency terminates.
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.
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.

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Classes at I.G.P
Agency
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