Agency means a relationship between one person and another, where the first person brings the second mentioned person in a legal relationship with others. There are different modes of the creation of agency and termination of agency.
Termination of Agency
An agent is a person employed to do any act or enter into a contractual relationship with others (third parties) on behalf of his principal. An agent acts as a connecting link between his principal and third parties.
While representing his principal, an agent acts in the same capacity as of his principal. An agent is authorized by his principal to act on his behalf. An agent binds his principal legally in business transactions with third parties due to their agency relationship.
According to Section 201 of the Indian Contract Act, 1872, Termination of agency takes place in the following circumstances: –
- By revocation of authority by the principal.
- By renunciation of his authority by the agent.
- On the performance of the contract of agency.
- On the death of either principal or agent.
- By insanity of either principal or agent.
- With the expiration of time period fixed for the contract of agency.
- By an agreement made between the principal and his agent.
- With the insolvency of principal or agent (in few cases).
- When the principal and his agent is an incorporated company, by its dissolution
- With the destruction of the subject matter. (section 56)
When an Agency is Irrevocable
When the agency cannot be terminated, it is known as an irrevocable agency. There are some situations when revocation of an agency by the principal is not possible, as follows:-
- When the agency is coupled with interest then this is a case where an agent has interest in the subject matter of such agency. Where the agency is coupled with an interest, it does not come to an end even in the case of death or insanity or insolvency of the principal.
- When an agent has incurred personal liability, then the principal cannot revoke the agency, the agency becomes irrevocable. For Example – P appoints Q as his agent. Q purchases some wheat as per the instructions of P in his personal name. Now, in such a case P cannot revoke the agency.
- Where the agent has partly exercised the authority, and it is irrevocable with regard to liabilities which arises from the acts performed. (section 204) For Example – Mr. X appoints Mr. Y as his agent. On Mr. X’s direction, Mr. Y purchases 100kg cereals in the name of his principal ‘Mr. X’. Now, in such a case Mr. X cannot revoke the agency.
When Termination takes Effect
Termination of an agency takes its effect when it becomes known to an agent. When the principal revokes the agency, it comes into effect only when it is known to the agent. However, in the case of third parties, termination comes into effect only when such termination of agency comes to their knowledge.
According to Section 210 of the Indian Contract Act, 1872 termination of an agent’s authority also terminates the sub-agents authority appointed by the agent. A per Section 209 of Indian Contract Act, 1872 it is the duty of an agent to protect his principal’s interest in case his principal becomes of unsound mind or dies.
It is the duty of an agent that on the termination of an agency due to death of the principal or his becoming insane, to take all the reasonable steps on behalf of his late principal or dying principal to protect the interest that the latter entrusts to him.
Solved Example on Termination of Agency
Write the features of an agency.
Ans: – Features of an agency are as follows: –
- Basis: – The basic quality of an ‘agency’ is that the principal is bound by the acts of his agent. Also, the principal is answerable to third parties.
- Consideration: – In a contract of agency, there is no need for any consideration.
- Capacity to employ an agent: – the principal should be of sound mind and competent to contract.
- Capacity to act as an agent: – an agent should be of sound mind and should have attained majority.