Termination of an Agency Under Indian Contract Act

In the Indian Contract Act of 1872, an agency contract is defined as "a contract by which a person engages another person to execute any act for himself or to represent him in dealing with a third person."

Who is an Agent?

The hired representative is known as an "agent," while the person being represented is known as a "principal." An agent can be employed by anyone over the age of 18. When an agency contract is made, no consideration is required. Section 182 of the Indian Contract Act of 1872 defines agent and principal. According to the definition, an agent is a person employed to carry out any act for another or to represent another in dealings with a third party. The 'principal' is the person who performs or is represented by such an act.

A contract with an agency might be of two types

• An agreement between the agent and the principal under which the agent has the right to act on the agent's behalf

• A contract is formed by an agent between a third party and the principal.

The principal has the authority to revoke an agent's authority at any time of the day. If trust between the agent and the principal is broken during the contract period, it is a risk for the principal to allow transactions to be continued by the agent.

Termination of an Agency

There are two major facets to the termination of an agency

By Act of the Parties themselves

It includes −

Agreement of the Parties

The most obvious way for an agency relationship to end is by mutual agreement between the principal and the agent. Since the principal-agent relationship is usually created through mutual agreement, the relationship can also be created through mutual agreement (bilateral).

However, if an agency is created to accomplish a certain goal or for a set length of time, the agency automatically ends when the goals are met or the period of time ends.

Revocation or Reunification

The unilateral revocation of power by the principal might establish the agency relationship. In this case, the third party with whom the agent has been dealing must be given express notice; otherwise, the agent will be presumed to have continuing authority to contract for the principal.

Similarly, the agent can unilaterally renounce the principal's power and must give notice to that effect. Even so, the revocation or renunciation notice has no effect on any rights or liabilities that may have arisen between the principal and a third party prior to the notice.

By Operation of Law

It includes −

Death

The agent's authority is obviously terminated when he dies. Except in the case of irrevocable agencies, the principal's death or liquidation ends the agency relationship. This is true even if the agent was aware of his principal's death. The agent is not liable for remuneration or indemnity. Moreover, the agent may be liable to the third party for breach of authority warranty.

Insanity

Except in the case of irrevocable agencies, the contract of agency automatically terminates when either the principal or the agent is insane. Third-party rights, however, are unaffected if the third party was unaware of the principal's condition. See also Drew v. Nunn.

Bankruptcy

The relationship was terminated due to an agent's bankruptcy.

Subsequent Illegality

The occurrence of an event that renders the agency's continuance unlawful may also lead to the end of the agency relationship.

Frustration

The destruction of the agency's subject matter, for example, or the occurrence of any other frustrating event may result in the termination of an agency relationship.

Conclusion

Subsequent events may result in the termination of the agency. They can be physical, such as when the subject matter is destroyed or when the principal or agent dies or goes insane. They may also be legal, such as when the principal or agent becomes bankrupt or the relationship becomes illegal (for example, if the principal becomes an enemy alien).

The results of termination are that rights vested at the time of termination will remain, but no new rights can be created, at least after the agent has received notice of the termination. Where the agency was formed by agreement, it will be determinable in the same way.

Frequently Asked Questions (FAQ)

Q1. How do you terminate an agency relationship?

Ans. The following are some common rules for terminating an agency relationship: Withdrawal by a Party, Termination by the Principal, Renunciation by Agent, Death or Incapacity of Agent, Death or Incapacity or Bankruptcy of the Principal.

Q2. What is termination of agency in contract law?

Ans. An agency can be terminated by either the principal or the agent, as shown below: a. If an agent is appointed to do a specific work or for a specified purpose, the agency will cease when the task is accomplished or the specific goal is met.

Q3. What is "termination of agency by act of parties"?

Ans. An agency can be terminated by the acts of either the principal or the agent under the act of the parties. This is in accordance with Section 154, which states that an agency is ended when the principal revokes his authority or the agent renounces the agency's business.

Q4. What is the right to terminate an agreement?

Ans. Discharging by agreement allows both parties to end the contract before the obligations are completed. This is known as mutual discharge, and it happens when parties agree that each party should be released before each party has taken any actions to fulfill the agreed-upon obligations.