Termination of Agency

Agency terminates by revocation, renunciation, completion of business, death or insanity of either party, insolvency of the principal, or expiry of time (S.201); revocation is ineffective where the agency is coupled with an interest or where authority has been partly exercised.

Agency, being a relationship of consent, may generally be ended by either party. S.201 lists the modes of termination. The Act then qualifies the power to revoke, both to protect an agent who has acquired an interest or acted on his authority, and to protect third parties who have not been told the agency is over.

Legal Framework

Provision	Subject	Key Rule
S.201	Modes of termination	Revocation by the principal, renunciation by the agent, completion of the business, death or unsoundness of mind of either, insolvency of the principal
S.202	Termination where the agent has an interest	Where the agent has himself an interest in the property forming the subject matter, the agency cannot be terminated to the prejudice of that interest
S.203	When principal may revoke authority	The principal may revoke the authority at any time before it has been partly exercised so as to bind him
S.204	Revocation where authority partly exercised	The principal cannot revoke as regards acts and obligations already arising from acts already done
S.205	Compensation for revocation or renunciation without sufficient cause	Where there is an express or implied contract for a fixed period, premature termination without sufficient cause requires compensation
S.206	Notice of revocation or renunciation	Reasonable notice must be given, failing which the resulting damage must be made good
S.208	When termination takes effect	Termination does not take effect as to the agent before it becomes known to him, and as to third persons before it becomes known to them
S.209	Agent's duty on the principal's death or insanity	The agent must take reasonable steps to protect the interests entrusted to him

Modes of Termination

1. By Act of the Parties

Mode	Provision	Explanation
Revocation by the principal	S.203	The principal withdraws the authority
Renunciation by the agent	S.201	The agent gives up the agency
Mutual agreement	General	Both parties agree to end it

2. By Operation of Law

Mode	Provision	Explanation
Completion of the business	S.201	The agency ends when its purpose is achieved
Expiry of the stipulated period	S.201	Where the agency was for a fixed term
Death of the principal or agent	S.201	Agency is personal and does not survive death
Unsoundness of mind of either	S.201	Capacity is essential to the relationship
Insolvency of the principal	S.201	The principal loses the power to deal with his property
Destruction of the subject matter	General	There is nothing left to act upon
Principal or agent becoming an alien enemy	General	The relationship becomes unlawful

Why insolvency of the principal but not of the agent terminates the agency: On insolvency the principal's estate vests in the official assignee, so he no longer has the power to authorise dealings with it. The agent's insolvency, by contrast, does not affect his capacity to represent another, since he deals with the principal's property and not his own.

Irrevocable Agency

The principal's power to revoke is not unlimited. Three situations make an agency irrevocable.

1. Agency Coupled with an Interest (S.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 that interest.

Why the interest defeats revocation: The agent's authority here is not merely a delegated convenience but the mechanism by which he secures his own proprietary or financial stake. Allowing revocation would let the principal destroy a right the agent has acquired for value. The authority and the interest are inseparable, so terminating one would defeat the other.

**Smart v Sandars (1848)** Court of Common Pleas

Facts: Factors held their principal's corn for sale and later made advances to the principal on the security of the corn. The principal instructed them not to sell. They sold anyway to recoup their advances.

Issue: Was the authority to sell irrevocable because the factors had made advances against the goods?

Held: The authority was revocable. The advances were made after the authority to sell was conferred, so the authority was not given as security for the advances. An agency is coupled with an interest only where the authority is given for the purpose of securing that interest.

Relevance: Establishes the crucial timing point. The interest must be the reason for the authority, not something acquired afterwards.

2. Authority Partly Exercised (S.204)

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.

3. Agent Has Incurred Personal Liability

Where the agent has, in the course of the agency, incurred a personal liability, the principal cannot revoke so as to leave the agent exposed.

Compensation and Notice

Compensation for Premature Termination (S.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.

Reasonable Notice (S.206)

Reasonable notice must be given of revocation or renunciation, otherwise the damage thereby resulting to the principal or the agent, as the case may be, must be made good.

Why notice is required even where revocation is lawful: An agent may have declined other work, incurred expenses, or made commitments on the footing that the agency would continue. Revocation without notice converts a lawful withdrawal into a source of avoidable loss. The requirement separates the right to revoke from the manner of revoking.

When Termination Takes Effect (S.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, as regards third persons, before it becomes known to them.

Why third parties are protected until they know: Until a third party learns of the revocation, the appearance of authority the principal created persists. Holding the principal bound in that interval reflects the same policy as apparent authority under S.237: a principal who created an appearance must dispel it before relying on its absence. The practical lesson is that a principal revoking an agency must give notice not only to the agent but to those who have been dealing with him.

**Trueman v Loder (1840)** Court of Queen's Bench

Facts: An agent had habitually contracted in his own name for a foreign principal, and third parties dealt with him on that basis. The agency was terminated but no notice was given to those third parties, and the agent continued to contract as before.

Held: The principal remained bound to third parties who dealt with the agent in ignorance of the termination. Until notice is given, those who have been accustomed to deal with the agent may continue to treat the authority as subsisting.

Relevance: The standard authority on the need for public or actual notice of revocation, reflecting S.208.

Agent's Duty on Termination (S.209)

When an agency is terminated by the principal's death or by his 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.

Illustrations

Revocation before exercise: A authorises B to sell A's car. Before B takes any step, A revokes the authority. The revocation is effective under S.203, since the authority had not been partly exercised.
Revocation after partial exercise: A authorises B to buy goods and B, acting on that authority, places a binding order. A then revokes. Under S.204 the revocation does not affect the obligation already created by the order placed.
Agency coupled with an interest: A owes B money and, to secure the debt, authorises B to sell A's godown stock and apply the proceeds in discharge. A cannot revoke to B's prejudice, because the authority was given for the purpose of securing B's interest (S.202).
Interest acquired after authority, revocation valid: Factors holding goods for sale later advance money to the principal on the security of those goods. Applying Smart v Sandars (1848), the authority remains revocable, since it was not conferred to secure the advances.
Compensation for premature revocation: A engages B as sole selling agent for two years. After six months A revokes without cause. Under S.205 A must compensate B for the loss caused by the premature termination.
Failure to give notice to third parties: A revokes B's authority but tells only B. B continues to place orders with a supplier who has dealt with him for years and knows nothing of the revocation. Applying S.208 and Trueman v Loder (1840), A is bound to that supplier.
Agent's duty on the principal's death: A dies while his agent B holds perishable stock for sale. Under S.209 B must take reasonable steps to preserve the stock for A's representatives, and may sell it if preservation so requires.

Recall Check

Why does the insolvency of the principal terminate an agency while the insolvency of the agent does not?
What is the crucial timing requirement for an agency to be coupled with an interest under S.202?
Against whom is a revocation ineffective until notice is given, and why?

Key Cases

Smart v Sandars (1848) Smart v Sandars 1848
Issue: Whether authority to sell became irrevocable because the agent later made advances on the security of the goods.
Rule: An agency is coupled with an interest only where the authority was conferred for the purpose of securing that interest.
Held: The authority remained revocable, since the advances were made after it was given.

Trueman v Loder (1840) Trueman v Loder 1840
Issue: Whether a principal remains bound to third parties who deal with a former agent in ignorance of the termination.
Rule: Termination does not take effect against third persons until it becomes known to them (S.208).
Held: The principal remained bound to third parties who had no notice of the revocation.

Distinctions

Basis	Revocation (S.203)	Renunciation (S.201)
Who acts	The principal	The agent
Notice required	Reasonable notice under S.206	Reasonable notice under S.206
Compensation	Payable to the agent under S.205 if premature and without cause	Payable to the principal under S.205 if premature and without cause
Limits	Cannot revoke where authority partly exercised or coupled with interest	Agent remains liable for loss caused by abrupt withdrawal

Basis	Revocable Agency	Agency Coupled with an Interest (S.202)
Purpose of the authority	To serve the principal's convenience	To secure the agent's own interest in the subject matter
Timing of the interest	Not applicable	Interest must exist when the authority is given (Smart v Sandars)
Effect of revocation	Effective, subject to notice and compensation	Ineffective to the prejudice of the agent's interest

Basis	Effect on the Agent (S.208)	Effect on Third Parties (S.208)
When termination operates	When it becomes known to the agent	When it becomes known to them
Consequence of no notice	The agent may continue to bind the principal	The principal remains bound to them
Practical step required	Communicate revocation to the agent	Give actual or public notice to those dealing with the agent

Flashcards

Name the modes of termination of agency under S.201.

Revocation by the principal, renunciation by the agent, completion of the business, death or unsoundness of mind of either party, and insolvency of the principal.

When may a principal not revoke the agent's authority?

Where the authority has been partly exercised (S.204), where the agency is coupled with an interest (S.202), or where the agent has incurred a personal liability.

What is an agency coupled with an interest?

One where the agent has an interest in the property forming the subject matter, and the authority was given to secure that interest. It cannot be terminated to the prejudice of that interest.

Why did the factors in Smart v Sandars fail?

Their advances were made after the authority to sell was conferred, so the authority was not given as security for the interest and remained revocable.

Is compensation payable on premature revocation?

Yes, under S.205, where there was an express or implied contract for a fixed period and the revocation was without sufficient cause.

When does termination take effect against the agent and against third parties?

Under S.208, as to the agent when it becomes known to him, and as to third persons when it becomes known to them.

What must an agent do when the principal dies?

Under S.209 take all reasonable steps for the protection and preservation of the interests entrusted to him, on behalf of the principal's representatives.

Does the agent's insolvency terminate the agency?

No. Only the principal's insolvency is listed in S.201, because it deprives the principal of power over his own property.

Exam Scenario

Problem: Harini appoints Karthik as her sole selling agent for three years on commission. To secure a loan of Rs. 5 lakhs that Karthik advances to her at the time of appointment, Harini also authorises him to sell a specified consignment of her goods and retain the proceeds towards the loan. Eight months later Harini, dissatisfied with sales, writes to Karthik revoking both authorities with immediate effect. She does not inform any of the dealers Karthik had been supplying. Karthik nevertheless sells the specified consignment and applies the proceeds to the loan, and also accepts a fresh order from a long-standing dealer. Advise Harini.

Step 1: Separate the two authorities

The two authorities have different legal characters, so the single letter of revocation does different work on each.

Authority	Character	Provisions	Effect of revocation
Sell the specified consignment and retain the proceeds towards the Rs. 5 lakh loan	Agency coupled with an interest in the subject matter	S.202	Cannot be revoked to the prejudice of that interest
Sole selling agency for three years on commission	Ordinary contractual agency	S.205, S.206, S.208	Revocable in principle, but with consequences

Step 2: The consignment authority survives under S.202

The authority to sell and retain proceeds was conferred at the time of and for the purpose of securing Karthik's Rs. 5 lakh advance. The agent therefore has an interest in the very property forming the subject matter of the agency.

Under S.202 the agency cannot be terminated to the prejudice of that interest. Karthik's sale of the consignment and appropriation of the proceeds is therefore lawful.

Step 3: The selling agency, three consequences follow

Revocation is available in principle, but take these in order:

S.205: Harini must compensate Karthik for premature revocation of a three-year agency without sufficient cause.
S.206: she was required to give reasonable notice, and immediate revocation exposes her to the resulting damage.
S.208: termination does not take effect against third persons until it becomes known to them.

Step 4: The dealer's fresh order

Apply Trueman v Loder (1840). Harini told only Karthik and gave no notice to the dealers who had been accustomed to deal with him.

The long-standing dealer had no knowledge of the revocation, so Harini remains bound by that order.

Three traps in this problem

Timing decides S.202. Distinguish Smart v Sandars (1848), where the advances came after the authority was given. Here the authority and the loan were contemporaneous, so the timing requirement is satisfied.

Dissatisfaction is not sufficient cause. Mere dissatisfaction with sales volume is unlikely to be sufficient cause under S.205, absent a performance term.

Notice to the agent is not notice to the world. Under S.208 a principal revoking an agency must give notice to the agent and to those dealing with him.

Conclusion. Harini cannot recover the consignment proceeds and must honour the dealer's order. She is liable to compensate Karthik under S.205 and S.206.