Termination of Agency

Under a contract of agency, the agent works on behalf of the principle, under a specified contract. But after a point of time when either of the parties feels that they don’t want to continue, they revoke it. Termination of contract of Agency are discussed under Sec.201–210 of the Indian Contract Act,1872. Under these, many aspects of termination have been discussed, such as: How can agency be terminated; Conditions when agency becomes irrevocable.

Ways of termination of agency:-

Broadly, there are two ways, by which agency can be revoked (i)by the acts of the parties, (ii)by operation of law

1. Termination by the Acts of the Parties

1. By mutual agreement – The relationship of principle and agent can be revoked anytime with mutual consent of both the parties. Agencies, which have come to the stage where they have become irrevocable by normal operations, can also be terminated with mutual agreement.
2. Revocation by principle/agent(sec.205) – Principle and agent after giving a reasonable notice can terminate the contract, keeping in view that no such work has been done by the agent, so as to bind the principle. In case of premature termination of the contract of agency, some compensation has to be paid by the person who has revoked the contract. The notice of revocation must be given at a reasonable time. In case of such a reasonable notice, the party seeking revocation must be help liable for any loss suffered by other.
3. Provision in the contract – In some contracts of agency, there exists a provision that binds the agent or the principle from doing certain activities, the performance of which can lead to the automatic termination of the contract. If either the agent or the principle does the restricted act, the contract comes to an end.

2. Termination by operation of law

1. By death or insanity of principle/agent(sec. 209) – If the principle or the agent dies or goes insane, the contract of agency ceases to exist. When it happens to the principle, the agent is liable to take reasonable care of the work assigned to him, before revoking the contract with his legal representatives.
2. Expiry of time – When contract of agency is entered into only for a specific period of time, the expiry of such time may stand the contract terminated, unless otherwise agreed.
3. By performance of contract – The relationship between the agent and the principle comes to an end, after the work that has been assigned to the agent gets over, if the relationship was established for a single transaction only.
4. When the principle/agent becomes alien/enemy – When the parties to the contract of agency reside in different countries, and the countries develop enemy relations, the contract of agency terminates, even the irrevocable once.
5. Insolvency of the principle/agent(sec.201) – The insolvency of principle terminates the contract because the principle is no more competent to enter into any contract. Same is the case with the agent, but if the act of agent is a mere formality, then agency may continue.
6. Destruction of subject matter – If the subject matter in respect of which contract of agency has been entered into gets destroyed, agency automatically comes to an end.

Conditions of an irrevocable agency contract:-

1. When the agent has interest in subject matter(sec.202) – If the agent has some personal interest in the subject matter of the contract of agency, the agency can’t be terminated.
2. When the authority has been partially exercised(sec.204) – When the agent has already started to exercise his authority, given to him by the principle, then the agency becomes irrevocable.