Introduction
When the relationship between a principal and an agent ends, it’s known as the termination of agency. Here’s a straightforward look at how this can happen under the Indian Contract Act, of 1872:
How Agency Can Be Terminated
By Actions of the Parties
Mutual Agreement: Both the principal and the agent agree to end their relationship.
Revocation by Principal: The principal decides to revoke the agent’s authority. This requires reasonable notice to avoid unexpected consequences.
Revocation by Agent: The agent can also choose to end the relationship by notifying the principal. Proper notice must be given to avoid liability for any resulting loss.
By Operation of Law
Completion of Task: The agency ends once the agent completes the specific task for which it was created.
End of Time Period: If the agency is set for a specific duration, it automatically ends when that time period expires.
Death or Insanity: If either the principal or agent dies or becomes insane, the agency terminates.
Insolvency of Principal: If the principal becomes bankrupt, the agency relationship ends.
Destruction of Subject Matter: If the subject matter of the agency is destroyed, the agency terminates.
Principal Becomes a Foreign Enemy: If the principal becomes an enemy of the state due to war, the agency terminates.
Winding Up of Company: If the principal is a company that winds up, the agency ends.
Post-Termination Obligations
Notice of Termination: The principal must notify the agent and any relevant third parties about the termination.
Express or Implied Revocation: Termination can be explicitly stated or implied through actions.
Case Law
R. Sayani v. Bright Bros (P) Ltd.: The court ruled that premature termination of an agency contract without proper notice required compensation.
Carter v. White: The court decided that an agent’s authority to complete a task given by the principal before their death was still valid.
Sukhdev v. Command of the Command: The court held that an agency relationship automatically ends after the agreed period without a renewal clause.
Truman v. Lauder: The court emphasized the principal’s duty to inform third parties about the termination of an agent’s authority.
Conclusion
Agency relationships are integral to business law, outlining the rights and duties of principals and agents. These relationships can be terminated in various ways, ensuring flexibility and clarity in business operations. Understanding the termination process helps both parties manage their legal and financial responsibilities effectively.
FAQ on Termination of Agency
1. What are the main ways an agency relationship can be terminated?
Parties can terminate an agency relationship through mutual agreement, revocation by the principal or agent, completion of the agency’s task, expiration of a specified period, death or insanity of either party, insolvency of the principal, destruction of the subject matter, the principal becoming a foreign enemy, or winding up of a company.
2. What duties do agents and principals have before the termination of the agency?
Agents must follow the principal’s instructions, act with skill and care, maintain accurate accounts, and avoid secret profits. Principals must fairly compensate the agent, reimburse expenses, and indemnify the agent against liabilities.
3. What happens after an agency relationship is terminated?
The principal must notify the agent and third parties about the termination, either expressly or by implication. Both parties must settle pending duties like compensation and reimbursement, and they are free to enter new contracts.
Also Read: Types of Agents in Contract
Reference: Lucknow University