Termination of Agency | Act of the Parties | Operation of Law

Termination of Agency by Act of the Parties

An agency can be terminated by the act of the parties in any one of the following ways.

Termination of Agency - Act of the parties, Operation of Law

Image: Termination of Agency – Act of the parties, Operation of Law

1. Mutual Agreement

The agency may be terminated at any time and at any stage by the mutual agreement between the principal and his agent. Therefore, the authority of an agent terminates, when the principal and the agent agree to terminate it.

Example: A appointed B, as his agent in order to collect the loan lent to C and D. B collected the loan lent to C. Subsequently, A and B agreed to put an end to the agency relationship between them. Here the agency is terminated.

2. Revocation of the Agent’s Authority by the Principal

The principal may revoke the authority of his agent before it has been exercised by the agent so as to bind the principal.

Example: A appointed D, as his agent to purchase certain goods. Any time before, he purchases the goods, A may revoke D’s authority. However, the revocation of agent’s authority is subject to the following conditions:

1. If the agent has exercised his authority partly, the principal may revoke the agency for future acts only.

2. If the agency is created for a fixed term and if there is some sufficient cause, the principal may revoke it before the expiry of the said term.

3. If the agency is created for a fixed period or continuous, the principal must give a reasonable notice of revocation of agency to the agent.

4. If the agent has some interest in the subject-matter, the agency can be revoked only when there is an express contract permitting the termination.

3. Revocation by the Agent

Agent, after giving a reasonable notice to the principal, may renounce the business of agency. If the contract of agency is entered into for a fixed period, agent should pay compensation to the principal for the earlier renunciation of the business of agency.

Termination of Agency by Operation of Law

An agency can be terminated by operation of law in any of the following cases:

1. Performance of the Contract: When the agency is for a particular object, the agency terminates when the object is fulfilled.

2. Expiry of Time: When an agency is created for a particular period of time, it comes to an end on the expiry of that period even if the work is not completed.

3. Death or Insanity of Either Party: The agency is terminated when the agent or principal dies or becomes insane. On the death of either the agent or the principal, the agency is automatically terminated because a person cannot act on behalf of non-existent person. Thus, where a client dies, his pleader’s authority also terminates. Similarly, the relationship between agent and principal comes to an end when principal or agent becomes insane, for a person of unsound mind cannot contract.

4. Insolvency of the Principal: When the principal is declared as insolvent, the agency is terminated. This is because the insolvent is disqualified from entering into contract in respect of his property.

5. Destruction of Subject-Matter: When the subject-matter in respect of which agency was created has been destroyed, the agency is terminated. Thus, if an agent is asked to sell a house, and the house is destroyed by fire, there is a cessation of the agency.

6. Principal becoming an Alien Enemy: When the war breaks out between the countries of the principal and the agent, the contract of agency is terminated.

7. Dissolution of a Company: When a company, whether it is of principal’s or agent’s dissolved, the contract of agency between them comes to an end.

8. Termination of Sub-Agent’s Authority: The sub-agents authority is terminated automatically, as and when the authority of the agent is terminated.

9. Subsequent event Rendering the Agency Unlawful: It maybe that an act is lawful when the agency was created but if it is declared by law to be unlawful subsequently, agency cannot continue, as that would be unlawful. An agency that is lawful may become unlawful due to declaration of war when the principal or agent is deemed an alien enemy.

Termination of Sub-agency and Substituted Agency

The authority of sub-agent will be terminated as and when the main agency is terminated. However, the substituted agency will not be terminated automatically if the authority of the main agent is terminated.