An agency can be terminated at any time. If the trust between the agent and the principal has broken down, the principal may not take risk in any transactions that may be concluded by the agent. There are many ways to terminate an agency relationship. Once the relationship is terminated, the agent no longer has authority to act for the principal. The principal is required to inform third parties that the agency relationship has been terminated.
An agency can be terminated or can be brought to an end by any of the following ways
- By act of the parties.
- By operation of law.
Agency can be terminated by act of the parties in the following ways
TERMINATION OF AGENCY BY ACT OF PARTIES:
An agency can be terminated by the act of the parties in any one of the following ways.
- Mutual Agreement:
The agency may be terminated at any time and at any stage by the mutual agreement between 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.
- Revocation of the Agent’s authority by the Principal
The principal may terminate the agent’s real or actual authority at any time so when the principal revokes his authority of the agent, the agency is terminated. However revocation otherwise than in accordance with the provisions of the agency agreement may render the principal liable to the agent for the breach of agency agreement.
Revocation of the agent’s power by the principal may not automatically discharge the principal from liability to a third party who is entitled to rely from liability to a third party who is entitled to rely on the apparent authority of the agent on the grounds of representation by the principal of previous course of dealing with the agent’s before notice of revocation is given to the third party. Therefore notice of revocation of an agent’s power should be given to the third party as soon as possible.
- Revocation by the 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.
BY OPERATION OF LAW
An agency may terminate by the operation of law upon the occurrence of particular events:-
- Performance of the Contract :
When the agency is for a particular object, the agency terminates when the object is fulfilled. Some agents are appointed to achieve a certain purpose and when that purpose is achieved, the relationship between the principal and agent stands terminated.
- Expiration of Period:
If agency is formed for a fixed period it may come to an end on the expiry of the period even if the business is not completed.
- Death and Insanity of the Principal or the Agent.
According to section 201 an agency is terminated automatically on the death or insanity of the principal or the agent. After knowledge about the principal’s death or insanity, although the agency terminates, the agent must take all reasonable steps for the protection of the interests of the principal.
- 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.
- Destruction of the Subject- Matter:
The loss or destruction of the subject of the agency or the termination of the principal’s interest is also one of the reason for the termination of agency. If the subject- matter in respect of which agency was created has been destroyed, then in such case the agent can’t perform the contract and the agency stands terminated.
Illustration: if an agent is employed to sell a house, the agency terminates if the house is destroyed by fire.
However, destruction of subject matter will not always result in termination of agency, especially when the subject-matter can be replaced without substantial loss to either party.
- By Dissolution of a Company:
When the principal or the agent is an incorporated company, the agency automatically terminates after the company gets dissolved.
- Principal and Agent becoming Enemy:
If the principal and agent are the citizens of two different countries and war breaks out between the two countries the agency gets terminated. If the agency still subsists then they would be called alien enemies and their relationship of agency will be against the law.
When the authority given to an agent cannot be revoked it is called irrevocable agency. An agency becomes irrevocable in following cases
- Where agency is coupled with interest:
According to section 202 if the agent has himself/ herself an interest in the subject matter of the agency, the agency is said to be coupled with interest. Section 202 says, where the agent has himself an interest in the property which forms the subject- matter of the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.
- Where the Revocation of Agency would cause a Personal Loss to the Agent:
Where the agent has personal liability, the agency becomes irrevocable and the principal cannot terminate the agency.
- When the Authority has been Partly Exercised by the Agent:
Section 204 says, the principal cannot revoke the authority given to his agent after the authority has been partly exercised, so far as regards such acts and obligations as arise from acts already done in the agency.
A contract of agency is a special type of contract. Agency may be terminated in same way as other contracts are discharged except when agency becomes irrevocable. Agency may be terminated by act of parties or by operation of law. Agency may be terminated by subsequent events they may be either by physical action for example insanity, death of principal or agent etc. or by legal action for example their relationship becomes illegal or principal or agent becomes bankrupt etc.