Model Answer
0 min readIntroduction
The contract of agency, governed primarily by Sections 21 to 28 of the Indian Contract Act, 1872, establishes a fiduciary relationship where one party (the agent) acts on behalf of another (the principal). While generally revocable like any other contract, this principle isn’t absolute. The law recognizes situations where a principal’s attempt to repudiate the agency is rendered ineffective, protecting the agent’s interests and third-party rights. This stems from the inherent nature of agency, which often involves ongoing commitments and reliance by others. The question necessitates an analysis of these exceptions, supported by relevant case law and statutory provisions.
General Rule: Revocability of Agency
The fundamental principle is that agency is revocable at the will of the principal, even if the agency is coupled with an interest (Section 209). This stems from the principal’s control over the agent’s actions. However, this right isn’t unfettered. The Indian Contract Act, 1872, and subsequent judicial interpretations have carved out exceptions to this rule.
Exceptions to Revocability
1. Agency Coupled with Interest
When an agent has a pecuniary interest in the subject matter of the agency, the agency becomes irrevocable for the duration of that interest. This is enshrined in Section 209 of the Indian Contract Act. The interest must be a direct financial stake, not merely a commission.
Example: If A appoints B to sell A’s house, and B agrees to purchase the house himself, the agency is coupled with an interest and cannot be revoked until B has exercised his option to buy.
2. Irrevocability by Completion of Contract
An agency cannot be revoked when the agent has partially performed the contract and the principal’s conduct leads the agent to believe the agency continues. This protects the agent from arbitrary termination after substantial work has been done.
Case Law: Wynne v. Keeble (1864) 11 CB (NS) 189 established that if a principal leads an agent to believe the agency continues, they are estopped from revoking it prematurely, especially if the agent has incurred liabilities based on that belief.
3. Revocation Before Completion – Liability to Third Parties
Even if an agency is revocable, a principal cannot revoke it in a manner that causes loss to third parties who have relied on the agency. Section 210 addresses this, stating the principal remains bound by the agent’s acts done in good faith before the third party receives notice of the revocation.
Example: If A authorizes B to purchase goods on his behalf, and B contracts with C, A cannot revoke the agency if doing so would leave C with unpaid goods.
4. Continuing Agencies & Notice Requirements
For continuing agencies (agencies of indefinite duration), revocation must be effectively communicated to both the agent and any third parties who might be affected. Failure to provide adequate notice can lead to the principal remaining liable for the agent’s actions.
Case Law: Holliday v. Pugh (1875) 2 Ch D 379 highlighted the importance of clear and unambiguous communication of revocation to third parties to avoid continued liability.
5. Agency by Estoppel
If a principal, by their conduct, leads a third party to believe that an agent’s authority continues despite its actual termination, the principal is estopped from denying the agent’s authority. This protects the third party’s reliance on the apparent agency.
Table Summarizing Exceptions
| Exception | Legal Basis | Key Feature |
|---|---|---|
| Agency Coupled with Interest | Section 209, Indian Contract Act, 1872 | Agent has a direct financial stake. |
| Partial Performance & Principal’s Conduct | Principles of Estoppel | Agent partially performs, principal leads agent to believe agency continues. |
| Liability to Third Parties | Section 210, Indian Contract Act, 1872 | Revocation cannot cause loss to third parties. |
| Continuing Agencies & Notice | General Principles of Agency Law | Effective communication of revocation to agent and third parties is crucial. |
Conclusion
In conclusion, while the contract of agency is generally revocable at the principal’s will, the law recognizes significant limitations to this right. These exceptions are designed to balance the principal’s control with the agent’s legitimate expectations and the need to protect third parties who rely on the agency relationship. The principles established through statutory provisions and landmark case law demonstrate a careful consideration of fairness and commercial practicality in the law of agency. Understanding these nuances is crucial for both principals and agents to navigate their respective rights and obligations effectively.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.