Termination of Agency (Contract of Agency)

Introduction - 

       In a contract of agency, a person appoints another to act on his behalf with the third party it is called 'Agency'.  According to Section 183 of the said Act, Principal must be competent to contract. Any person may be an agent (Section 184).  According to Section 185, in the contract of agency, consideration is not necessary. See... Essential Elements of Agency. Termination of agency means putting an end to the legal relationship between principal and agent. Section 201 to 210 of the Indian Contract Act 1872 lay down the provision relating to the termination of Agency.

Meaning and Definition of Agency - 

     Agency is the legal relationship between an agent and principal to bring the principal into legal relationship with the third party.
    Section 182 of the Indian Contract Act 1872 defines agent and principal - " An agent is a person employed to do any act for another or to represent another in dealing with third persons.  The person for whom such act is done or who is so represented is called the principal" There are Different types of Agents (See... Classification of Agents ). 

Termination of Agency -

          As above said termination of agency means putting end to the legal relationship between principal and agent.  Section 201 to 210 of the Indian Contract Act 1872 lay down the provision relating to the termination of Agency.

Section 201,  Indian  Contract Act 1872 provides for termination of an agency - 
     
      An agency is terminated by the principal revoking his authority, or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.

[See also... Distinction / Difference between Sub Agent and Co-Agent/ Substituted agent]

Agency may be terminated two ways - 

1) By the Act of the Parties -  

2) By Operation of Law - 

1) By the act of the parties - 

i) By agreement -  The Contract of Agency can be terminated at any time by mutual agreement between the principal and agent

ii) By revocation of the principal - The Principal revoke agency at any time by giving notice to the agent

iii) By Renunciation of an agent - Renunciation which means withdrawing from responsibility as Agent.  Like Principal, Agent can also renounce the agency.  According to Section 206 of the Indian Contract Act 1872, the agent must give to his Principal reasonable notice of renunciation. Otherwise, he will be liable to make good for the damage caused to the principal for want of such notice.

2) By operation of law - 

Agency can be terminated by operation of law

i) By the completion of agency - Agency can become to an end after the completion of work for which the agency is created. 

ii) By expiry of the time - Agency can also be terminated by the expiry of time. if the agency is created for the specific period, it is terminated after the expiry of the time.

iii) Death or insanity of principal or agent -  Section 209 of the Indian Contract Act 1872 imposes an agent, duty to terminate the contract of agency on the death of the principal. In other words, Agency comes to an end on the death or insanity of the principal or agent.

iv) Insolvency of principal - According to Section 201 of the Indian Contract Act 1872, an insolvent or bankrupt is a person who is unable to run the business due to Excess of liabilities over assets. In this way, if the principal becomes an insolvent agency can be terminated.

v) Destruction of the subject matter - If this subject matter of the agency is destroyed agency comes to an end.

For example - Any agency is created for sale of an Airplane if the Airplane caught fire before the sale the agency comes to an end. In this contract Airplane is the subject matter. 

vi) Principal becoming an alien enemy - If the Principal becomes an alien enemy the contract of agency comes to an end.


vii) Dissolution of company or firm - A Firm or company may be regarded as a Principal in the contract of Agency. If the company or firm is dissolved the agency comes to an end



See also -

The Capacity of Person Who may employ an Agent

Difference between Sub-Agent and Substituted-Agent

Contract of Indemnity

Distinction/ Difference between Bailment and Agency