“All you need to know about Termination of Agency”

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“INTRODUCTION” To The Termination of Agency

Before getting into the concept of Termination of Agency, it will be more appropriate to take a quick glance at the concept of Agency. 

What is Agency? Section 182 of the Indian Contract Act, 1872 defines Agency as,  “An ‘agent’ is a person who is employed to do any act or performance for another or to represent another in dealings with the third person. The person for whom such act is done, or who is so represented, is called the ‘principal’. ” 

On a simple note, Agency is a relationship between one person to the other, where an Agent is employed to do any kind of act for someone or to represent to someone in a dealing with a third person. For example, ‘A’ lives in Chennai but owns a shop in Delhi. He appoints ‘B’ to take care of the dealings and hands over the local management of the shop. In this case, ‘A’ has delegated his authority to ’B’. And ‘A’ becomes a Principal while B becomes an agent.

So, what does Termination of Agency mean? An Agency Contract is like any other Contract. There are some unexpected instances where a Contract has to be terminated. There would be various instances, where a Contract needs to be terminated. Instances like death, expiration of the Contract, destruction of the subject matter, etc… But, there are some Agency Contracts, which can not be cancelled. In that kind of situation, it is said to be that the Agency is irrevocable.

A detailed delineation is given in the following sections.

“SECTION 201” Defines  The Termination of Agency

According to Section 201 of the Indian Contract Act, 1872, the Termination of Agency takes place in situations like :

  • By revocation of authority by the principal : The principal has the right to terminate the agency. 
  • By renunciation of his authority by the agent : The agent also has the right to reject the offered Agency. 
  • On the performance of the contract of agency : After the performance of the Agency, the Contract can be concluded. That is, terminated. 
  • On the death of either principal or agent : If death on either side occurs, the Agency would be terminated. 
  • By insanity of either principal or agent : If the principal or the agent gets affected by mental illness, the Contract could be terminated. 
  • With the expiration of time period fixed for the contract of agency : Once the specified time period is expired, the Contract would automatically come to an end. 
  • By an agreement made between the principal and his agent : If there is a mutual agreement between the parties, then the Contract can be terminated. 
  • With the insolvency of principal or agent (in few cases) : if either one of the parties goes bankrupt, the Contract can be terminated. 
  • When the principal and his agent is an incorporated company, by its dissolution.

“THE ACT OF THE PARTIES AND THE OPERATING LAW” Causing The Termination of Agency

As already mentioned, there could be various situations, where an agency may be terminated due to the acts of either the principal or the agent, which is illustrated below. 

By the Act of the Parties 

Revocation by the Principal

The Principal has the right to revoke the authority of an agent at any point in time. However unilateral the revocation is, the principal could still be liable to the agent for the breach of the agency agreement, if the Contract is not abided by.

As explained in Section 205 of the Indian Contract Act, 1872, revoking the agent off his power by the principal, might not necessarily discharge the principal from being liable to a third party, who is entitled to rely on the apparent authority of the agent in the grounds of representation by the principal of the previous course of the deal with the agent, before the notice of the revocation, is given to the third party. Hence, the notice of revocation of the Agency should be handed to the third party, prior. 

By Notice

If the agency agreement provides that the agency may be terminated upon either party serving on the other written notice of a specified duration.

Renunciation by the Agent

An agent of an Agency has the right to renounce his power, by refusing to perform the act or by giving notice to the Principal that, he will perform the act. 

The Termination of the Agency by the agent, before he has performed the obligations, for the principal, under the agency agreement will make the agent liable to the principal, for the breach of the agency agreement. In that case, he is liable to pay the damages for the loss suffered by the principal and the third party.

By the Operating Law 

Performance by the Agent

If an agent is appointed to perform a particular task or for a specific purpose, the Agency will terminate after the task is accomplished by the agent or the specific purpose is attained. 

Expiration of the Specified Time

When an agent is appointed for a specific period of time, the Agency is legally terminated if the time expires. Even if the assigned work is not complete. 

Death and Insanity

When either one of the parties dies or becomes mentally ill, the Agency is terminated. And according to Section 209 of the Indian Contract Act, 1872, the agent is liable to take all the reasonable steps for the protection of the interests, entrusted to him.

Insolvency

If the principal becomes bankrupt, it puts an end to the Agency.

Destruction of the Subject Matter

The Agency which is created to deal with a specific subject matter gets terminated if the subject matter is destroyed. 

Principal Becoming an Alien Enemy

The Agency is valid between two alien parties, as long as the countries of the Principal and the agent is at peace. If a war breaks out between them, the Agency is terminated. 

Dissolution of the Company

When a company is dissolved, then automatically all the Agency related to it, is terminated. 

Termination of Sub-Agent’s Authority

If the agent’s authority is terminated, it automatically puts an end to the sub-agent’s authority, as mentioned in Section 210 of the Indian Contract Act, 1872. 

“IRREVOCABLE AGENCY” &  The Termination of Agency

When an agency can not be terminated under any circumstances, it is called as an Irrevocable Agency. There are some instances, where the revocation of an agency, by the principal, is not possible. The instances could be as follows :

Agency Coupled With Interest

When the agency is coupled with an interest, then this is a classic case, where an agent has an interest in the subject matter of the agency. So, where the agency is coupled with an interest, the Agency does not come to an end. Even if the Principal suffers from insolvency or death or insanity. 

Agent Incurring Personal Liability

When an agent has incurred the personal liability, then the agency becomes irrevocable. For an illustration, A appoints B as his agent. B purchases some wheat, as per the instructions of A, in his personal name. Now in such a case, A cannot revoke the agency.

Agent Partly Exercising the Authority

Where the agent has partly exercised the authority, it is irrevocable with regards to the liabilities, which arises from the acts performed as mentioned in Section 204 of the Indian Contract Act, 1872. For an illustration, A appoints B as his agent. On A’s direction, B purchases 100-kilo grams of cereals, in the name of the principal. Now, in such case, A cannot terminate the agency.

“SOME CASE LAWS” of The Termination of Agency

R. Sayani v. Bright Bros (P) Ltd

An organisation has been formed for a specified amount of time. The liability for its premature termination will have to be compensated if the termination did not have proper justification. And, there was no fair warning given for the premature termination of the department. So, the agent received the compensation of Rs. 4000, a month. The court was of the opinion that, there should have been at least three months warning, in prior. So correspondingly, a reward of Rs. 12,000 was given.

Sukhdev v. Commissioner of Endowments

Through the expiry of time, an agency comes to an automatic end. Where a gas pump was to be regulated by the agency for a certain period of time. Later, it was held that the agent was obligated to vacate the premises at the end of the period. And there was no extension provision, nor was there an actual renewal clause.

Carter v. White

A principal owed his agent, a sum of money and gave him an agreed exchange bill with the authority to fill in the name of the drawer. Before the agent could finish the bill, the principal died. The agent’s power to fill in the name of the drawer was still not considered to be terminated.

BIBLIOGRAPHY/REFERENCE

  1.  N. D Kapoor, Elements of Mercantile Law (New Delhi : Sultan Chand & Sons, 2020) (Amazon link : https://www.amazon.in/Kapoors-Elements-Mercantile-Commerce-Courses/dp/9389174368/ref=sr_1_1?crid=3EGJJ94OR4N05&dchild=1&keywords=mercantile+law+by+nd+kapoor&qid=1633530497&qsid=259-4834265-4775108&sprefix=mercan%2Caps%2C319&sr=8-1&sres=9389174368%2CB08D5KX83B%2C935161039X%2C8180549747%2C9387907112%2CB07T9XC2VY%2C8180545970%2C8121903777%2CB00ON3D0KW%2CB01LXT52OY%2C9380231172%2C8180542130%2C8170146275%2C9387907392%2C9387907406%2C9387506452&srpt=ABIS_BOOK )
  1.  Section 182 in The Indian Contract Act, 1872 < https://indiankanoon.org/doc/1175857/ > [Accessed 6 May 2021]
  1.   Section 201 in The Indian Contract Act, 1872 < https://indiankanoon.org/doc/878936/ > [Accessed 6 May 2021]
  1. Mirza, Law of Agency: What is Principal- Agent relationship?, 2019 < https://blog.ipleaders.in/law-of-agency-what-is-principal-agent-relationship/ > [Accessed 6 May 2021]

Digranth Raj Sehgal, All you need to know about termination of an agency agreement and assessing compensation on termination, 2020 < https://blog.ipleaders.in/need-know-termination-agency-agreement-assessing-compensation-termination/ > [Accessed 6 May 2021]

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