Agency is concerned with any principal-agent relationship: a relationship a person has legal authority to

act for another. Hence he should have opportunity to transact business through another agent. Agency is
special kind of contract. The Principal of contract of agency are – A) Expecting matters of personal
nature, what a person can do him, he can also do it through agent .B) A person acting through an agent is
acting himself, i.e. act of agent is act of Principal

AGENT:

An agent is a person who agrees to work on behalf of another person called principal. Agent can only
work on behalf of principal on certain issues. An agent is person employed to do any act for another or to
represent another in dealings with third party. An agent engaged with the principal to perform principal’s
job, such as- selling goods, to manage business or to deal with third party. The principal expressly or
impliedly authorizes the agent to work under his or her control or on behalf. An agent acts within the
scope of authority which is delegated by the principal. Any person may become an agent. If a principal
appoint an agent who is minor or unsound mind can he undoubtedly bring a contract between principal
and third party but liability must be taken by principal.

Authority of agent– An agent has authority to:

 Do everything necessary, prior or usual in the ordinary course of business to effect the purpose of
the agency; and
 Make representation as to facts, not including the terms of the agent’s authority, on which the
agent’s right to use his or her authority depends, and the truth of which cannot be determined by
the use of reasonable diligence on the part of the person to whom the representation is being
made.

Actual Authority is that authority a principal intentionally confers upon the agent, or intentionally, or by
want of ordinary care, allows the agent to believe that he or she possesses. Ostensible authority is that
authority a principal intentionally, or by want of ordinary care, causes or allows third persons to believe
that the agent possesses ostensible authority is sometimes referred to as apparent or implied authority.

Express Authority- Express authority is created by a contract which completely and precisely
delineates those activities the agent is authorized to undertake.

Implied Authority: Authority that is

 Conferred by customs
 Inferred from the position the agent occupies, or
 Inferred as being reasonably necessary to carry out express authority.

Apparent Authority- Apparent authority depends not upon the express or implied agreement between
principal and agent, but upon the reasonable expectations of third parties who have been led to believe
that the agent is authorized to act in behalf of the principal. Apparent authority is distinctly different from
actual or express authority and is sometimes referred to as ostensible authority by estoppels. Ostensible
authority by estoppels arises when the principal, by words or conduct, leads a third party to believe that
another person is hid agent.
When the principal’s actions have created the appearance of authority the agent and a third party
reasonably relies, to his/her detriment, upon this authority. The most common cause of question
concerning apparent authority is the principal’s placement of a limitations upon the normal and ordinary
authority of the agent and failure to communicate this limitations to a third party dealing with the agent.

Formation of agency:

A person does not become an agent on behalf of another merely because he gives him advice in matters of
business. Agency is founded on contract, either expresses or implied by which one party confides to the
other the management of some business to be transacted in his name or on his account. The essence of
agency is that the principal authorizes the agent to represent him bringing or to aid in bringing, the
principal into contractual relation with third party. An agency is the creation of contract entered into
mutual consent between a principal and agent. By agency a principal grant authority to an agent to act on
behalf and under the control of principal. The relation between a principal and an agent is fiduciary and
agent action bind by the principal.

1) Agency by Agreement

2) Agency by Estoppel

3) Agency by Necessity

4) Agency by Ratification

1) Agency by agreement :

Agency by agreement is also known as agency by authority. This agreement can be expressed or implied.
An authority is said to be express when it is given words spoken or written. An authority is said to imply
when it is to be inferred from the circumstances of the case. The actual authority depends on the
construction of words of appointment This authority that an agent has to do everything that is necessary
for or reasonably incidental to the effective execution of his duties as in Hely – Hutchinson v Brayhead.

2) Agency of ratification :

This arises when one ratifies or adopts the acts of another done without his knowledge or authority but on
his behalf. “Where acts are done by one person on behalf of another but without his knowledge or
authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as
if they had been performed by his authority”. When ratified the principal is bound by the act whether it be
for his detriment or for his advantage. The operation of the doctrine is illustrated by Bolton Partners v
Lambert. Lambert made an offer to an agent of Bolton. The agent acted without authority and purported
to accept the offer on Bolton’s behalf. Lambert then tried to revoke the offer but after this attempted
revocation Bolton ratified his agent’s act. The court held Lambert was bound buy the contract, because
Bolton’s ratification related back to the agent’s acceptance and therefore revocation was too late.
3) Agency by Estoppel :

This arises when a principal is estopped from repudiating the liability or obligation incurred by his agent
acting on his behalf . Contract act lies down thus – “When an agent has, without his authority, done acts
or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or
obligations if he has by his words or conduct induces such third persons to believe that such acts and
obligations were within the scope of the agent’s authority. In leading case Soanes V L.S.W.R. the plaintiff
entrusted to a porter wearing the uniform of defendant Railway Company. The luggage was stolen .The
Railway Company wanted to avoid liability for the loss on the ground that the porter was off duty. But it
was held that the porter was held out by the Company as agent authorized to receive luggage and as such
the company was bound by his acts.

Agency by estoppel arises in three ways:

· A person may hold out another as his agent though that other is not has been his agent.

· A person may hold out another as his agent although that other has ceased to be so. Loder’s agent H
used to sell tallow in the form “sold for L”. After some time H ceased to be L’s agent but L did not notify
that to his customers. So when H contracted to sell tallow to the plaintiff, Loder was held liable for the
contract. (Fruman V. Loder.)

· A person may hold out his agent as having a wider authority than he was actually given. The manger of
public house had the authority only to buy mineral and bottle beers but the managers bought some cigars
though he had no authority to do so. The owners of the public house was held liable for the cigar as they
by their conduct , held to that the manager had authority to do everything connected with the public house
(Wattean V. Fenwick)

4) Agency by Necessity :

This arises when the exigency or peculiarity of circumstances renders it impossible for one to obtain
authority from someone else on whose behalf he acts .A parent is an agent of necessity to arrange and
prepare a marriage settlement of an infant child. The child need not be separately represented by an
independent legal advisor (Tucker V. Bennet) another example can take into account. A seller of
goods cannot deliver them due to their war conditions and sell them purporting to act as the
original buyer’s agent of necessity ( Prager V. Blatspiel).

Dissolution of Agency:

A contract of agency is termed as general contract. Therefore an agency may terminate in the same way
as a contract is discharged expect where the agency is irrevocable. In broad term an agency may
terminated either by the act of parties or by the operation of law.

Indian contract act 1872, clearly mentioned different criteria to dissolve agency relationship. If a principal
revoke the contract which has been signed between principal and agent must be terminated in accordance
with the Indian contract act 1872. No exception can apply to terminate the contact. 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 adjudicated an insolvent under the provision of any Act for the time
being in force for the relief of insolvent debtors.

Termination of agency by the act parties in any of the following reasons:

1. By the act of parties

2. By the Operation of Law

Principal:

The principal is somebody who agrees to have somebody who can act on behalf of principal in certain
issues. Principal instruct the agent whom he/ she appoint but principal cannot directly control or supervise
the agent. A principal must have legal capacity (they are not insane or in certain circumstances a minor).
Any person any person who is at the age of majority according to the law to which he is subject and who
is of sound mind may employ agent. Persons, Corporations, Partnerships, Not-for-profit organizations and
government can all be principals and appoint agent.

1. By the act of parties:

A. By revocation by the principal

Principal may revoke the agency at any point in time before the authority has been exercised and must be
for just excuse. Revocation has however to be made subject to the following restriction. This restriction
termed as irrevocable agency.

These are mentioned bellow:

I. When the agent has an interest in the subject-matter of the contract, his authority cannot be revoked so
as to prejudice that interest. Where the agent has himself an interest in the property, which forms the
subject matter of the agency, the agency in the absence of an express contract, cannot be terminated to the
prejudice of such interest.

II. If the agent partially exercised his authority, the principal cannot revoke the authority the acts what
agent has already done. The principal cannot revoke the authority given to his agent after the agency has
been partly exercised so far as regard such acts and obligations as rise from acts already done in the
agency.

III. If there is any express or implied contract exist then agency should be continued for any period in
time. If any kind of revocation or renunciation of agency takes place then principal or agent must be
compensated. In Indian Contract act it is clearly stated that, where there is an express o implied contract
that agency should be continued for any period of time, the principal must take compensation to the agent,
or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency
for the sufficient cause.

B. The agent renounces the business of agency

Reasonable notice of such renunciation must be given. Renunciation can be made only for a just cause. If
the renunciation is unwarranted or otherwise amount to a breach of contract, the principal is entitled to
compensation.

2. Operation of Law:

I. By death or insanity of principal:

The relation between an agent and a principal is entirely personal. For this reason death or insanity of
either terminates the agency subjects to the provision of Sec 202 and 204 of contract law 1872. In case of
company, its winding up and in case of a firm, its dissolution has same effect.

II. By insolvency of the principal or agent:

A person who has been adjudged an insolvent cannot act as a principal because his contractual capacity
has thereby lapsed. Hence all contracts of agency which he has made with others also are dissolved. Burt
the insolvency of an agent does not terminate the agency.

III. Efflux of time:

When the agency is for fixed period of time, it terminates on the expiry of that time.

IV. The principal becoming an alien enemy:

If the principal and agent are from different countries and war breaks out between two countries, the
contract of agency is terminated.

In above mentioned points it is clearly stated the reasons of dissolution of agency relationship between
agent and principal based on expressed or implied contract. No exception can imply to nullify the contract
other than these reasons in line with the Indian Contract Act 1872. If any principal revoke the contract
without knowledge of agent It cannot affect the relationship .if we scrutinize all of the section in contact
law 1872 we come out with that notion that agency relationship only terminate by two broad ways.

One is by act of parties and another is by the operation of law. First consider the act of

Parties under this segment principal can revoke the agency contract before agent exercise his or her
authority. The revocation must be for just excuse. The revocation must be supported by the just and
sufficient because otherwise agent must be compensated. On the other hand before revoke the relationship
reasonable notice must be given. If it is not the resulting damage must be made good to the one by the
other.
Along with this, operation of law can be the reasons of termination of agency relationship. Death or
insanity, efflux of time, insolvency of principal and if principal becoming an alien enemy. Above
mentioned reasons are clearly indicating that no principal can terminate the relationship without the
knowledge of agent.

In case of, fixed time frame contract terminated after expire of time. Before the scheduled date any
termination attempt will not be affected. If contract take place between two people from different country
and war breakout between two countries caused termination of agency relationship. So in any case, no
principal can terminate the contract by ignoring the all of section regarding dissolution of contract of
contract law 1872.

According to the, contract Law 1872, revocation of authority cannot be affected before it’s known to
agent and also to the third party.

How an Agency Relationship can be terminated:

The relation of principal and agent can only be terminated by the act or agreement of both parties to the
agency or by operation of law. Once the relationship is terminated, the agent no longer has authority to act
for the principal and the principal is required to inform third parties (that dealt with the agent) that the
agency relationship has been terminated. There are many ways to terminate an agency relationship which
include:

Lapse of time: If the parties agree to set a time period for the agency relationship which terminates
when the time period passes. For instance, you hire a person to be your agent for one year. After one year,
the agency relationship automatically terminates unless you extend it. On the other hand, if the parties did
not fix any appropriate time for the termination of contract, the contract is considered to be terminated
after a reasonable time.

Purpose achieved: Some agents are hired to achieve a certain purpose and once that purpose is
achieved, the agency relationship is automatically terminated which you can extend. A basic example is
when professional sports players hire an agent to only negotiate contracts.

Mutual agreement: An agency created for a specific purpose as well as an agency created by a power
of attorney is terminated once the particular purpose for which it was created was achieved. After the
termination of the agency, the agent is free of any fiduciary duty to the principal arising from the agency
relationship and both parties can terminate the agency by mutual agreement as such relationship requires
the mutual approval of the parties and both the parties have power to withdraw their approval. Moreover,
an agency may not be terminated by the act of one of the parties and should be done mutually and the
mutual abandonment of an agency is a question of fact, since it is a matter of intention of both the parties.
The court will ascertain such interest from the surrounding facts and circumstances of the transaction as
well as implied from the conduct of the parties.

Certain events: An agency relationship will automatically terminate upon the occurrence of certain
events include death, insanity, or bankruptcy of either the principal or agent.
In addition, an agency can be terminated by operation of law. The death of the principal operates
as an immediate and absolute revocation of the agent’s authority. The loss of capacity of a party
resulting from temporary or permanent mental incompetency may result in the termination of the
agency relationship. Similarly, bankruptcy of the principal is a valid reason for the termination
of agency and the agent is divested of any authority to handle with any assets or rights of property of
which the principal was divested by reason of the bankruptcy, irrespective of whether the agent receives
notice of the insolvency. A power of attorney may be terminated by the bankruptcy of the principal. The
mere bankruptcy of the principal will not automatically terminate agent’s authority.

A change in value of the subject matter or a change in business conditions may terminate or suspend the
agent’s authority if the agent should reasonably deduce that the principal would not consent if aware of
such facts. Similarly, a change in legal identity of, or merger by, the principal is a valid ground for
termination of an agency contract and the termination of the principal’s interest is yet another ground for
terminating the agent’s authority. The agent’s authority ceases when the agent has notice of the fact.

4. How the termination without the knowledge of the agent may not render the act invalid
which has been done after the recession of contract:

a. Recession of Contract:

The recession of contract is the act of cancelling or ending law or the cancellation of all or some terms of
the contract.

The destruction or annulling of a contract and the right to rescind a contract seems to suppose not that the
contract has existed only in appearance; but that it has never had a real existence on account of the faults
which accompanied it; or which prevented its actual execution.

A recession of contract cannot be revoked by one party unless both parties can be placed in the same
situation, and can stand upon the same terms as existed when the contract was made. The clear instance of
this rule is where one party by taking possession has received a partial benefit from the contract.

b. Termination without the knowledge of the agent may not render the act invalid:

According to Indian Contract Act, 1872, a termination of Principal-Agent relationship without the
knowledge of the agent cannot make the act invalid after cancelling the contract. Whether the contract
between a Principal and an Agent is written or spoken, when acts are completed by the principal without
the authority of the agent, the principal can choose to make an agreement officially valid by signing it
which is called Ratification. Knowledge requisite is also important for valid ratification as ratification can
be invalid by someone whose knowledge of the facts of the case is not materially perfect.

Other modes of termination of agency:

By efflux of time, by destruction of the subject matter, by incapacity of principal or agent, Principal or
agent becoming an alien enemy, by object of agency becoming unlawful.
Recession of contract:

Contract recession is available under the following circumstances:

 Consent: Both parties must manifest their intent to have the contract rescinded. It is best if they
indicate their consent through an additional written document.

 Issues with contract formation: The contract must be made under legal conditions, and consent
cannot be acquired by force or fraud. If the contract was formed under illegal conditions, it may
be rescinded. Common formation defects includes

o Fraud: The false representation may relate either to the contracts subject matter or to
matters related to the contract
o Lack of capacity: One of the parties lacks to the capacity to negotiate an agreement due to
illness, mental incompetence, intoxication, or being underage (under 18 years old)
o Coercion/Duress/Under Influence: A party cannot be forced to sign a contract under
threats of harm or under hostile conditions
o Mistake: Both parties must clearly understand all the terms in the contract
o One party’s actions indicate that they will not be performing their part of the bargain
(“anticipatory repudiation)
o Consideration has failed, is inadequate, or is illegal.
o Against public interest: A contract may be rescinded if performing it would be against the
general consent of the public (for example, a contract requiring one of the parties to be
subjected to indentured servitude).

After Recession the Termination of Agency

The recession of a contract means the cancellation of a contract. In case of an agency relationship when a
contract is successfully rescind the principal, agent and the third party are free from the obligation of the
contract. As we know, the principal appoint an agent to act on his behalf with the third party. If the
Contract with the third party is cancelled then the agent’s duty related to that contract also ends. After that
if principal can terminate agency without informing the agent but principal must inform the third party
about the termination of the agency.

Notice of Termination: When an agency has been terminated by act of the parties, it is the principal’s
duty to inform any third parties who know of the existence of the agency that is has been terminated
(although notice of termination may be given by others.). However, express notice to the agent that the
agency has been revoked, or to the principal that the agency is renounced, is not always necessary if the
affected party actually knows, or has reason to know the facts resulting in such revocation or
renunciation.

 Agents Authority Continues until Notify: An agent’s authority continues until the agent receives
some notice of termination. As previously mentioned, notice to third parties follows the general
rule that an agents apparent authority continues until the third party receives notice (from any
 source of information) that the authority has been terminated. The principal is expected to notify
directly any third party who the principal knows has dealt with the agent. For the third parties
who have heard about the agency but have not dealt with the agent, constructive notice is
sufficient.
 From of Notice: No particular from is required for notice of termination of the principal-agent
relationship to be effective. The principal can actually notify the agent, or the agent can learn of
the termination through some other means. If the agent’s authority is written, it must be revoked
in writing, and the writing must be shown to all people who saw the original writing that
established the agency relationship.