Termination of Agency

An obligation does not usually remain indefinitely. Several reasons exist for which contractual obligations could come to an end. Agency, being a form of business contractual relationship is not insulated from this general principle.

Agency relationship could cease to exist through any of the following ways: by termination of the relationship and by performance of the obligations assumed by each of the parties within the given time.

Similarly, other business developments such as invalidation, cancellation, merger & acquisitions etc can bring obligations of agency relationships to an end. The agency relationship is not permanent. Either by action of the parties or by law, the relationship will eventually terminates.

By Agreement

a. On the basis that an agency relationship is created by agreement between the principal and the agent, such a relationship can also be brought to an end by mutual agreement between the parties, either in writing or orally.
b. Termination by agreement may also occur if the agency relationship is terminated pursuant to the provisions of the agency agreement itself. The following situations may arise in this context:
i. If the agreement provides for the appointment of the agent for a
Specified period of time, the agency will automatically come to an end when that period of time expires.
ii. If the agreement provides for the agency to terminate upon the occurrence of a specified event, the agency will come to an end upon the happening of the specified event. Many agreements contain specified circumstances whose occurrence signals the end of the agency. The most obvious of these circumstances is the expiration of a fixed period of time (“agency to terminate at the end of three months” or “on midnight, December 31”). An agreement may also terminate on the accomplishment of a specified act (“on the sale of the house”) or following a specific event (“at the conclusion of the last horse race”). Mutual consent between the parties will end the agency. Moreover, the principal may revoke the agency or the agent may renounce it; such a revocation or renunciation of agency would be an express termination. Even a contract that states the agreement is irrevocable will not be binding, although it can be the basis for a damage suit against the one who breached the agreement by revoking or renouncing it. As with any contract, a person has the power to breach, even in absence of the right to do so. If the agency is coupled with an interest, however, so that the authority to act is given to secure an interest that the agent has in the subject matter of the agency, then the principal lacks the power to revoke the agreement.

By Act of the Parties

An agency may be terminated by the acts of either the principal or the agent, as illustrated below:
Performance by the Agent
If an agent is appointed to accomplish a particular task or for a specific purpose, when the task is accomplished by the agent or the specific purpose is attained, the agency will terminate. . Illustration: An agent who has sold goods, for the sale of which he was employed (agreed) has performed his obligations. No more obligations shall remain except to demand the payment of remuneration depending on the agreement. And when the two parties have performed their part no obligation is in force.

Revocation by principal
i. The authority of an agent may be revoked at any time by the principal. However, unilateral revocation otherwise than in accordance with the provisions of the agency agreement may render the principal liable to the agent for breach of the agency agreement.
ii Any word or conduct of the principal inconsistent with the continued exercise of authority by the agent may operate as revocation of the agency.
iii. Revocation of the agent’s power by the principal may not automatically discharge the principal from liability to a third party who is entitled to or relied on the apparent authority of the agent on grounds of representation by the principal on previous course of dealing with the agent before notice of revocation is given to the third party. Therefore, notice of revocation of an agent’s power should be given to the third party as soon as possible.

Revocation is a choice left to the principal. In the common law, it is not discretionary for the principal to revoke the authority only upon his need. However, in principle, the principal is empowered to terminate the relationship upon his will. There are certain limitations on the principal to revoke the authority of the agent. Let’s see some limitations below irrevocable agencies: In the first place revocation is not allowed without the agent’s consent where the agent has been granted authority to act on the principals behalf but in respect or for the protection of any interest of the agent. In common law this becomes true when the authority was given either by deed or for a valuable consideration as a security in respect of a liability of the principal to the agent. In one case decided by a common law court, it goes that, an agent was sent to sell goods on behalf of the principal. He made advances to the principal on the security of these goods sent. It was held that the authority was irrevocable; because the agent has paid a security for the relationship. Hence, when there is a security advanced by the agent, it is not the right of the principal to revoke without the consent of the agent. This happens when the security remains unpaid. Does it work under our law? Even in the common law, irrevocable agency does not apply where the sole purpose of the agency, as far as the agent is concerned, is to enable the agent to earn his commission by action on the principal‘s behalf. Similarly where the agent has incurred personal liability by acting in pursuance of his authority such that the principal would be liable to indemnify the agent in respect of such liability, then the principal cannot revoke his authority so as to avoid the obligation of indemnifying the agent while leaving the agent personally liable. In another case, the agent was employed to make bets on behalf of his principal: he was authorized to pay if he lost the bets. The agent placed the bets but lost. The court has held that the principal could not revoke after this had happened but was still liable to indemnify the agent, since the agent, for the sake of his character and business, was bound to pay the amount that had been lost. In addition to the above facts about revocation, there is a missing obligation of the principal when revoking authority of the agent. Under the Law of Contracts, the party that seeks to terminate a relationship is bound to furnish notice to the other party at least in principle, unless this is excluded by the parties at the formation of the agreement. When it comes to revocation of agency by the on the part of the principal. There is no strict obligation to give notice to the other party we will later explain this concept in detail when we compare revocation of agency by the principal with termination of agency by agent (renunciation). Till then suffice to say that the law does not impose any duty on the principal to give notice to the agent while exercising his power to revoke the agency relationship with his agent. However, there is a post facto (after the fact), consequential obligation on the part of the principal. That is, once the principal has declared the revocation of the agency relationship there are certain obligations to follow the principal. Basically, the principal is bound to compensate the damages the agent may suffer as a result of a revocation declared by the principal. Look at this provision. This provision is not a condition for revocation rather it is the effect of revocation. Revocation, is often made suddenly, but even when it is made upon notice, it may still result in damages against the agent. The above provision is the natural consequence of the logic that one who causes the damage has to compensate. The agent, with a view that the agency relationship might proceed for a reasonable period of time, might have for example arranged some private affairs which have economic implications. This is usually when the time for termination of the relationship is not agreed upon. When parties have agreed upon the date of termination of the relationship, and when the principal fails to observe that date the principal has to indemnity the agent for the damage sustained by the latter because of the termination. However, there is a defense to the principal upon termination of the relationship. These are: where the date was agreed upon the exclusive interest of the principal or where the principal has a just motive for revocation. Therefore, when the agency relationship is established only for the interest of the principal, there is no need for the latter to compensate the agent.

For example, a gratuitous agency relationship is not made for the interest of the agent but for the exclusive interest of the principal. Hence it does not matter whether it is terminated today or tomorrow where the agency relationship does not fetch any material interest to the agent. Similarly, where the agent has failed to observe one or more of his obligations, then the principal shall have a good motive to terminate. For example, when the agent has failed to act in good faith; failed to act diligently; failed to account (financial and/ or activity); does not carry out his obligations personally etc, the principal is relieved of paying compensation when he terminates the relationship.

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Renunciation by Agent
A counter right granted to the agent is the right to renounce the authority he had acquired. This is termed as renunciation.
i. An agent is entitled to renounce his power by refusing to act or by notifying the principal that he will not act for the principal.
ii. Unilateral termination of the agency by the agent before he has fulfilled his obligations to the principal under the agency agreement will render the agent liable to the principal for breach of the agency agreement, such as payment of damages for loss suffered by the principal. Renunciation is a declaration made by the agent to terminate agency relationship that existed with the principal. Similar to revocation, it is a unilateral declaration. There is no limitation provided by the above provision on the right of the agent to terminate agency relationship. So, does it mean that the parties (principal and agent) can agree to the effect that the agent cannot terminate the agency relationship except upon the consent of the principal? Is that fair to limit the rights of the agent to terminate by a prior agreement while this is not the situation in the case of the revocation? Contractual Relationship is formed on the Basic Principle of Freedom of Contracts. A contract entered for an indefinite time comes to an end upon the request of one of the parties. Once the agent has terminated the relationship by a unilateral declaration, there are two consequential obligations upon him. These are giving notice and payment of indemnification. Notice is peculiar to renunciation and not to revocation. The agent unlike the principal is bound to provide an agreed, customary or circumstantial period of notice to the principal within whom he/she is going to terminate the relationship. Can you imagine the reason why the law has discriminately bound the agent to give notice and not the principal while unilaterally terminating the relationship? As you might have noticed under the heading revocation above, the principal is not bound to give notice while revoking the power of authority. On the contrary, it is the duty of the agent to give notice to the principal while renouncing the relationship. The reason emanates from the very nature of agency relationship. The required good faith, diligence… cannot be expected from an agent who is given notice for termination within a future fixed date. Hence, it is contrary to the general principle of the required duty of the agent. On the other hand, there are interests of the principal at stake if the agent has to terminate the authority suddenly. Hence, this (notice) is time for the principal to take care of his interests. Yet, this does not mean that the agency shall remain indefinitely unless notice is given. But it is meant that the agent is bound to indemnify the principal where, because of the failure of the agent to give notice, the principal suffers damage. Upon termination by the agent, with or without notice the principal may not suffer any damage. In the latter case, there is no compensation to pay to the principal.

By Notice

i. If the agency agreement provides that the agency may be terminated upon either party serving on the other a written notice of specified duration, for example, three months’ written notice, either party on the other party. may terminate the agency agreement by serving the required notice
ii. However, if the agency agreement does not contain any termination provision, the general rule is that reasonable notice has to be given to the other party to terminate the agency.

By Operation of Law

There are a number of other circumstances that will spell the end of the relationship by implication. Unspecified events or changes in business conditions or the value of the subject matter of the agency might lead to a reasonable inference that the agency should be terminated or suspended; for example, the principal desires the agent to buy silver but the silver market unexpectedly rises and silver doubles in price overnight. Other circumstances that end the agency include disloyalty of the agent (e. g., he accepts an appointment that is adverse to his first principal or embezzles from the principal), bankruptcy of the agent or of the principal, the outbreak of war (if it is reasonable to infer that the principal, knowing of the war, would not want the agent to continue to exercise authority), and a change in the law that makes a continued carrying out of the task illegal or seriously interferes with it. An agency may terminate by operation of law upon the occurrence of the following events:
a. Where the party concerned is an individual:
i. death;
ii. Insanity; or
m. Bankruptcy.
b. Where the party concerned is a limited company:
i. winding-up; or
Ii. Receivership.
c. Frustration of the contract of agency
Even though authority has terminated, whether by action of the parties or operation of law, the principal may still be subject to liability. Apparent authority in many instances will still exist; this is called lingering authority. It is imperative for a principal on termination of authority to notify all those who may still be in a position to deal with the agent. The only exceptions to this requirement are when termination is effected by death, loss of the principal’s capacity, or an event that would make it impossible to carry out the object of the agency. Subsequent physical events: Let’s assume that the property which the agent was required to sell is destroyed. Would the agency relationship terminate or continue to exist? You do not find a specific provision within the law of agency that would be a solution to this problem. You need to look at the general contracts provisions. As you might remember, the agency relationship requires object to be assumed. The object assumed by the agent in the above example is sale of an object (good). But when this good is destroyed the contract remains without an object. A contract without an object is void. Hence, the relationship vanishes, extinguishes upon the good being destroyed.

Irrevocable Agencies

If an agency is coupled with an interest it cannot be revoked by the principal. It is coupled with an interest only when the agent has some interest or estate in the subject matter of the agency. An agency is irrevocable when the agent has an estate or interest in the subject matter of the agency. His interest in the agency itself, no matter how extensive it may be, is not sufficient to prevent even its wrongful termination. In that event the agent is in the same position as any other party to a contract which the other party has broken and may sue for his damages. But if besides that interest, he has an interest in the thing itself, his agency can no more be revoked than any property can be taken from a man without his consent. Thus if the agency must continue in order to reimburse the agent for expenditures made by him, or loans made by him to the principal or others, then in case the agency has been granted for the purpose of securing the lender, the agency is irrevocable. Thus if A should loan P one million Naira , and a security for the loan should be given by P the authority to collect certain debts, P could not deprive A of this security by revoking the agency. But if P should employ A to sell land on commission, he could revoke the authority at any time, even though thereby depriving A of his fees, for A could have his damages and this right is as great a protection to him as though the agency had continued. If an agency is stated to be “irrevocable,” it may nevertheless be revoked, unless coupled with an interest. But of course if there is no right to revoke it, its revocation will give rise to an action for damages.

Wrongful Termination of an Agency Relationship

Laws that govern agency relationships are based on both contract and employment law. If an agency is wrongfully terminated, one party can sue the other for:

Breach of contact: Many agency relationships are created by a contract. Wrongfully terminating the agency relationship is a breach of the contract.

Employment law: An agent is basically an employee of the principal. A wrongfully terminated agent can bring a wrongful termination claim against the principal. Termination of an agency relationship can be quite complex. Since both contract and employment law are involved in agency law, an experienced attorney can advise you on the best way to terminate an agency relationship to avoid any pitfalls.