Termination of Agency

Termination of agency is the end of the relationship between the Principal and Agent. Therefore, the termination of agency cannot be done by the act of one party, as there is a relationship between the principal and agent by an agreement or law by a third party known as the contract of agency. As the agent deals with the third party on behalf of the principal.

Table of Contents

Termination of Agency

Termination of agency has been provided under sections 201 to 210 of the Indian Contract Act, 1872.

Modes of Termination of Agency

Modes of termination of agency have been provided under sections 201 to 210 of the Indian Contract Act, 1872. As per section 201, it is provided that the termination of agency is not comprehensive.

Modes of termination of agency can be classified into two parts as;

By the Act of Parties,
By the Operation of Law.

1) By the Act of Parties

By the act or conduct of the parties the contract of the termination of agency can be done in the following manner;

a) Revocation by Mutual Agreement

The contract of the agency can be terminated at any time by the mutual agreement between the principal and agent. Thus, the contract of agency is a relationship between the principal and agent which comes to an end by the mutual agreement between the parties either in writing or orally.

The agreement is made for the appointment of the agent for a specified period of time, the agency will come to an end automatically when the period of time expires.

Illustration

A and B are the principal and agent respectively. And, they made an agreement for the dissolution of their contract of agency i.e. the dissolution of their relationship between the principal and agent. This is an example of termination of a contract of agency by mutual agreement.

b) Revocation by Principal

Contract of agency can be terminated by the principal by way of revoking the agent’s authority. The principal by revoking his agent’s authority when it has not been exercised by the agent and reasonable notice must be given to the agent for such revocation of contract of agency.

Illustration

A employed B as an agent to sell out his products. Later, A himself starts selling his products and terminated the agent from the contract agency. This is an implied revocation/termination of contract of agency.

c) Revocation by Agent

Contract of agency also can be terminated by the revoking the agency by serving the notice to the principal for the termination of agency.

As per section 206 of the Indian Contract Act, 1872, the agent must give proper notice to the principal for the revocation of contract of agency. Otherwise, the agent shall be liable to make good for the loss to the principal for such notice.

2) By Operation of Law

The contract of agency can be terminated by the operation of law as discussed below;

a) By Completion of Agency

The contract of agency may come to an end when the obligations agreed between the principal and agent agreed at the time of formation of contract of agency are performed by the parties, then the contract of agency automatically comes to an end.

Illustration

A employed B as an agent to sell his properties in Mumbai. After, the completion of this agreement, the contract of agency will automatically be terminated, as the obligation of contract of agency is completed.

b) By Lapse of Time

When the contract of agency is created for some specific period and after that period, the contract of agency will automatically end.

c) Death or Insanity of either Principal or Agent

As per section 209 of the Indian Contract Act, 1872, it is provided that if there is a death of either the principal or agent the contract of agency will be automatically terminated in this situation.

d) By Insolvency of Principal

As we have already seen, that to form a contract of agency, one of the essential elements of contract of agency is that the parties to the contract of agency must be a competent persons as per section 10 and __ of the Indian Contract Act, 1872.

If the principal becomes insolvent or bankrupt after the contract of agency is formed then the contract of agency will automatically be terminated.

e) By Destruction of Subject Matter

The agency contract is terminated when the subject matter of agency is destroyed then the agency contract will automatically come to an end.

As per section 56 of the Indian Contract Act, 1872, A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful

Illustration

A appointed B as an agent to sell his products. But, if the factory of A catches fire and all the products are buried in the fire, then the agency contract between A and B will automatically come to an end as the subject matter of the contract agency is destroyed.

A gives authority to B to sell A's land, and to pay himself, out of the
proceeds, the debts due to him from A. A cannot revoke this authority, nor
can it be terminated by his insanity or death

f) When the Principal Becomes a Foreign Enemy

The contract of agency comes to an end when the principal becomes a foreign enemy.

Illustration

A is employed in China and his agent B works for A in India for the business of A, but due to war climate between China and India i.e. the countries of the principal and agent, the contract of agency will automatically be terminated.

g) Winding up of Company or Firm

A contract agency comes to an end when a firm or company can be considered as a chief in an agency contract, if the company or firm is dissolved or merged then there is a termination of agency contract.

Termination of Sub-agent and Substituted Agent (Sec. 210)

In a contract of agency, the authority of the 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.

As per section 210 of the Indian Contract Act, 1872, it is provided that the termination of the authority of an agent causes the termination (subject to the rules herein contained regarding the termination of an agent’s authority) of the authority of all sub-agents appointed by him.

Liability of Principal after Termination of Agency

As the contract of agency is terminated, it is the liability of the principal to compensate the agent. If the agency contract does not indicate the terms of compensation, the principal agent is obliged to provide the appropriate compensation. Further, it is the duty of the principal to reimburse an agent for the reasonable amount spent in performing his duties. For example, it includes travel costs, meals, beverages, accommodation etc.

Moreover, it is the duty of the principal to give notice to the agent and the third party involved with the reasons for termination. And, this notice must be duly served on both parties.

Case Laws

R. Sayani v/s Bright Bros. (p) Ltd. 1980

In this case, it was held that where an organization is formed for a defined amount of time, the liability for premature termination will have to compensate if termination will have to be compensated if the termination was not justified. No proper warning was given for the department’s premature decision.

Whereas, the agent got Rs. 4000 per month. The court was of the view that there should have been a warning of at least three months and the reward of Rs. 12000 was allowed.

Carter v/s White, 1883

In this care, it was held that the money was to his agent and gave him an agreed exchange bill with the authority to fill in the drawer’s name. After that, the principal died before he could finish the bill. Therefore, his power to fill in the name of the drawer was not considered terminated.

Frequently Asked Questions

What are the five ways in which agency may be terminated?

Agency terminates for any of these legal reasons: 1) If either party dies or is permanently incapacitated. 2) If either party is declared bankrupt. 3) If either party materially breaches the agency contract. 4) If either party experiences impossibility of performance of agency duties. 5) If there's frustration of agency's purpose.

How do I terminate a contract with an agency?

Generally, either party will have the rights and power to terminate an agency relationship, but they will not be able to necessarily terminate whenever they choose. To terminate an agency relationship, the principal can provide constructive notice.

What is the termination of a contract?

Termination of a contract involves ending an active contract before it is entirely performed per both parties' agreed-upon terms and conditions. If a written agreement is terminated before parties perform obligations, the requirement to fulfil these obligations becomes void.

Conclusion

Termination of agency is the end of the relationship between the Principal and Agent. Therefore, the termination of agency cannot be done by the act of one party, as there is a relationship between the principal and agent by an agreement or law by a third party known as the contract of agency. As the agent deals with the third party on behalf of the principal.

Referred Books:

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Termination of Agency