Agency Part 2
Section 201. Termination of agency.
An agency comes to an end in any of the following ways:
Revocation by principal: The principal can terminate the agency by withdrawing the agent’s authority.
Renunciation by agent: The agent may terminate the agency by giving up the business of the agency.
Completion of agency business: When the purpose for which the agency was created is accomplished, the agency ends automatically.
Death or unsound mind: If either the principal or the agent dies or becomes of unsound mind, the agency terminates.
Insolvency of principal: If the principal is declared insolvent under the law relating to insolvent debtors, the agency ends.
Section 202. Termination of agency, where agent has an interest in subject-matter.
If an agent has a personal interest in the property involved in the agency, the principal cannot end the agency in a way that harms that interest.
This protection applies even if the principal wants to revoke the agent’s authority.
The agency can only be terminated if there is a clear contract that specifically allows such termination
Illustrations:
(a).
A authorizes B to sell A’s land and to pay himself from the sale proceeds the debts owed by A to B.
In this case, A cannot revoke the authority, and the agency is not terminated even if A becomes insane or dies.
(b).
A hires B to recover ₹1,00,000 from C and invest it safely.
B recovers the full ₹1,00,000.
B invests ₹90,000 in a safe investment. B is entitled to remuneration for this portion.
B invests ₹10,000 in a bad or unsafe investment. B is not entitled to remuneration for this portion.
B must pay A for the loss caused, which is ₹2,000.
Section 203. When principal may revoke agent’s authority.
Except where Section 202 applies (i.e., the agent has an interest in the subject-matter), the principal can revoke the agent’s authority at any time.
This revocation is valid as long as the agent has not already exercised the authority in a way that legally binds the principal.
So , the principal can withdraw the agent’s authority before it has been acted upon, unless the agent has a protected interest in the subject-matter.
Section 204. Revocation where authority has been partly exercised.
Once an agent has partly exercised the authority, the principal cannot revoke the authority in respect of acts already done or obligations arising from those acts.
Revocation cannot affect acts or obligations already created by the agent’s exercise of authority.
Illustrations:
(a).
A authorizes B to buy 1,000 bales of cotton on A’s account and pay from A’s money.
If B buys the cotton in his own name, making himself personally liable, A cannot revoke the authority regarding payment, because the act has already been undertaken.
(b).
B buys the cotton in A’s name, so B is not personally liable for the purchase.
Since B has not taken on any personal obligation, the act does not bind B in any way.
Because of this, A can still revoke B’s authority to make the payment.
Because , the authority has not yet been exercised in a way that creates a binding obligation on B personally.
Section 205. Compensation for revocation by principal, or renunciation by agent.
If there is an express or implied agreement that the agency will continue for a certain period:
If the principal revokes the agency before the agreed time without sufficient cause, the principal must compensate the agent.
Similarly, if the agent renounces the agency before the agreed time without sufficient cause, the agent must compensate the principal.
Illustration:
A hires B as his agent for one year.
After three months, A revokes B’s authority without cause.
A must compensate B for the loss of expected earnings for the remaining nine months.
Conversely, if B quits without sufficient cause, B must compensate A for any losses caused by the early termination.
Section 206. Notice of revocation or renunciation.
When either the principal revokes the agency or the agent renounces it, reasonable notice must be given to the other party.
If no reasonable notice is given, the party causing the revocation or renunciation is liable to compensate the other for any damage resulting from the sudden termination.
This protects both parties from losses due to abrupt termination of the agency.
Example:
A appoints B as his agent to sell goods.
If A revokes B’s authority immediately without informing B, and B incurs expenses preparing for the sales, A must compensate B for the loss.
Similarly, if B quits abruptly without notice and A suffers losses as a result, B must make good the damage.
Section 207. Revocation and renunciation may be expressed or implied.
The principal can revoke the agent’s authority, and the agent can renounce the agency, either expressly (through clear words) or implicitly (through their conduct).
Actions or behavior can communicate the termination of agency even without explicit statements.
Illustration:
A gives B authority to let (rent out) A’s house.
Later, A lets the house himself.
This impliedly revokes B’s authority, even though A did not directly tell B.
Section 208. When termination of agent’s authority takes effect as to agent, and as to third persons.
When termination of agent’s authority takes effect as to agent, and as to third persons:
The termination of an agent’s authority only takes effect for the agent once he knows of it.
For third parties, the termination only takes effect once they are aware of it.
Until knowledge is received, the agent can still act and bind the principal, and third parties can still rely on the agent’s apparent authority.
Illustrations:
(a).
A revokes B’s authority by letter. B sells the goods before receiving the letter.
The sale is valid, and B earns his commission.
(b).
B knows of the first letter revoking authority, but not the second.
C, unaware of the second revocation, buys cotton from B.
The sale is valid against A, and C’s payment is effective.
(c).
A dies, but B is unaware and pays C as instructed.
The payment is valid against A’s executor.
Section 209. Agent’s duty on termination of agency by principal’s death or insanity.
When the principal dies or becomes of unsound mind, the agency automatically terminates.
Even after termination, the agent must act reasonably to protect the principal’s interests.
This duty is for the benefit of the principal’s representatives (e.g., heirs, executor, legal guardians).
Example:
A consigns goods to B for sale.
A dies.
B must take reasonable steps to preserve the goods, such as storing them safely or ensuring proper care, until the estate can manage them.
Section 210. Termination of sub-agent’s authority. Agent’s duty to principal
The authority of a sub-agent also ends automatically when the original agency is terminated.
The sub-agent cannot act independently once the original agent’s authority is revoked, terminated, or ends due to death/insanity of the principal.
Both agents and sub-agents have duties to protect the principal’s interests even after the agency ends, but their authority to act ceases.
Section 211. Agent’s duty in conducting principal’s business.
An agent must follow the principal’s instructions when conducting the principal’s business.
If the principal has given no instructions, the agent must act according to the usual custom or practice in that type of business at the place where the agent operates.
Consequences of deviation:
If the agent acts contrary to instructions or customary practice and causes a loss, the agent must compensate the principal.
If the agent makes a profit beyond what is authorized, he must account for it to the principal.
The agent must act in good faith, either by following instructions or customary practices, and cannot profit unfairly at the principal’s expense.
Illustrations:
(a).
A is an agent carrying on B’s business.
It is customary to invest idle funds to earn interest, but A does not invest them.
A must compensate B for the lost interest.
(b).
B, a broker, sells A’s goods on credit even though it is not customary to sell on credit.
Any loss arising from this breach must be borne by B.
Section 212. Skill and diligence required from agent.
An agent must conduct the principal’s business:
With reasonable skill: At least the skill generally possessed by people in the same line of business, unless the principal knows the agent lacks skill.
With reasonable diligence: Even if the agent has skill, he must actively take care and perform his duties.
Liability for loss:
The agent is responsible for direct losses caused by his neglect, misconduct, or lack of skill.
The agent is not liable for indirect or remote losses caused by the same factors.
The agent must exercise reasonable skill and care, and is accountable for direct losses caused by negligence, but not for losses too remote to be considered a direct consequence.
Illustrations:
(a).
A merchant in Calcutta sends money via B, his London agent.
B delays payment.
A suffers insolvency as a result
B must compensate for:
The unpaid money
Interest from the due date
Direct loss like variation in exchange rate
Not liable for further indirect losses.
(b).
An agent sells goods on credit without checking the buyer’s solvency.
Buyer is insolvent.
Agent must compensate for the resulting loss.
(c).
An insurance broker omits standard clauses in a ship insurance policy.
Ship is lost.
Broker must make good the loss due to missing clauses.
(d).
Agent fails to send 100 bales of cotton by the specified ship.
Cotton arrives safely, but the price rises shortly after.
Agent must compensate for the profit lost at the arrival date, but not for later price increases.
Section 213. Agent’s accounts.
An agent must maintain proper records of all transactions conducted on behalf of the principal.
On demand, the agent is obligated to render accounts to the principal, showing receipts, payments, and other dealings.
The duty to account is continuous and arises whenever the principal requests it.
Section 214. Agent’s duty to communicate with principal.
An agent must exercise reasonable diligence to keep the principal informed, especially in cases of difficulty or uncertainty.
The agent should promptly seek the principal’s instructions whenever necessary to properly carry out the agency.
Effective communication is part of the agent’s duty of care towards the principal.
Section 215. Right of principal when agent deals, on his own account, in business of agency without principal’s consent.
If an agent engages in business on his own account within the scope of the agency without the principal’s consent and conceals material facts or acts to the principal’s disadvantage, the principal has the right to repudiate the transaction.
The principal may choose to either cancel or affirm the transaction depending on whether the agent acted dishonestly or whether the dealings were harmful.
The agent must disclose all material facts and obtain consent before dealing on his own account; otherwise, the principal can repudiate the transaction.
Illustrations:
(a).
A directs B to sell A’s estate.
B buys it for himself in the name of C.
If B dishonestly conceals facts or the transaction harms A, A may repudiate the sale.
(b).
B finds a mine on A’s estate but conceals it while informing A of his intention to buy.
A can later repudiate or adopt the sale after discovering B’s concealment.
Section 216. Principal’s right to benefit gained by agent dealing on his own account in business of agency.
If an agent secretly conducts agency business for his own benefit, without informing the principal, any profit he makes does not belong to him.
The profit or benefit earned in such a situation legally belongs to the principal.
The principal can demand that the agent hand over the benefit.
The principal can also recover it from the agent if the agent refuses.
The agent cannot profit secretly from a transaction in the business of the agency; all such gains are claimable by the principal.
Illustration:
A directs B, his agent, to buy a house.
B falsely tells A it cannot be bought and buys it for himself.
On discovering this, A can compel B to sell the house to A at the price B paid.
Section 217. Agent’s right of retainer out of sums received on principal’s account.
An agent is entitled to retain from any money received on behalf of the principal:
Advances made by the agent for conducting the business.
Proper expenses incurred in carrying out the agency.
Remuneration or commission payable to the agent for acting in the agency.
The agent’s right of retainer ensures he is reimbursed and compensated before handing over the remaining sums to the principal.
Section 218. Agent’s duty to pay sums received for principal.
After making any allowable deductions (advances, expenses, remuneration), the agent is obliged to pay all remaining sums received on behalf of the principal to the principal.
The agent must account fully for the money received, minus what he is legally entitled to retain.
Section 219. When agent’s remuneration becomes due.
Unless there is a special contract, the agent is entitled to payment only after completing the act for which he was employed.
An agent may retain money received on account of goods sold, even if:
Not all the consigned goods have been sold.
The sale is not fully complete.
Remuneration is tied to the performance of the act, but agents may hold proceeds already received in connection with the agency.
Section 220. Agent not entitled to remuneration for business misconducted.
If an agent misconducts the business of the agency, he cannot claim payment for that part of the work that was mismanaged or negligently performed.
An agent’s right to remuneration is conditional on proper performance; any misconduct reduces or nullifies payment.
Illustrations:
(a).
A employs B to recover ₹1,000 from C.
B’s misconduct causes failure in recovery.
B gets no payment and must compensate A for the loss.
Section 221. Agent’s lien on principal’s property.
Unless there is a contract stating otherwise, an agent has a right to retain the principal’s property (goods, documents, or other items) in his possession.
This right is called a lien.
The agent can keep the property until he has been paid or reimbursed for:
Commission
Expenses/disbursements
Services rendered in connection with that property
The lien protects the agent’s right to compensation before handing over the principal’s property.
Example:
(a).
A consigns 500 bales of cotton to B for sale.
B has not been paid his commission or reimbursed for expenses.
B can retain the cotton until he receives what is due.
