How is an agency terminated?

Termination of agency

An agency may be terminated either by – 1) act of the parties, or 2) operation of law.

By act of the parties:

1. By agreement: An agency, like any other contract, can be terminated at any time by a mutual agreement between the Principal and the Agent.

2. Revocation by the Principal: The Principal is empowered to revoke the authority of the Agent at any time. The agency stands terminated from the time such revocation is effected. Revocation can be express or implied.

a. In the case of a continuous agency, it can be terminated by revocation only for the future. It cannot be revoked in relation to the acts already done by the Agent. In other words, revocation cannot be with retrospective effect. Reasonable notice should be given to the Agent and also the third parties before revocation.

b. An agency, which is created for a fixed period, can be terminated by revocation even before the expiry of that period. However, the Principal is bound to pay compensation to the Agent, even if the authority is revoked after giving notice.

3. Renunciation by the Agent: It is the termination of the agency at the instance of the Agent, when he no longer wishes to continue working as Agent. The Agent has to give a reasonable notice to the Principal of his intention to renounce the agency; otherwise he is liable to compensate the Principal for any loss due to renunciation without notice. Further, if the agency is for a fixed period and the Agent renounces it without sufficient cause before the expiry of the period, he shall have to compensate the Principal for the resulting loss, if any.

By operation of law:

An agency comes to end automatically by operation of law in the following conditions:

1. Completion of business of agency: If the purpose for which the agency is created is served and achieved, the agency stands terminated, e.g. where an advocate is appointed to appear in a suit, his authority comes to end when the adjudication is complete and the judgment is delivered.

2. Expiry of time: When the agency is created for a specified period of time, the agency comes to end with that period, even though the business or reason for which the agency was created continues.

3. Death of the Principal or the Agent: An agency is terminated automatically on the death of the Principal or the Agent. In the event of the death of the Principal, the Agent must take all reasonable care to protect the interests of the deceased Principal, which were entrusted to him.

4. Insanity of the Principal or the Agent: If the Principal or the Agent becomes of unsound mind, the agency is terminated automatically. Here also, in the case of insanity of the Principal, the duty of the Agent is the same as in the event of death of the Principal.

5. Insolvency of the Principal: When the Principal becomes insolvent, the agency is terminated. However, the termination of agency on the insolvency of the Agent is at the discretion of the Principal.

6. Destruction of the subject matter: Where the agency is created with reference to a particular property or subject matter, it stands terminated automatically with the destruction of that property. When the Agent is appointed for the sale of a house, the agency is terminated when the house is destroyed by fire.

7. Dissolution of a Company: It is like the death of the Principal or the agent. When Principal or the Agent is an artificial person created only in the eyes of law (such as incorporated companies), the agency is terminated with the dissolution of that company.

8. Becoming an alien enemy: If the Principal or the Agent is a citizen of another country and the war breaks between India and that country, the contract of agency is automatically terminated, as the continuance of the same is unlawful.