“An “agent” is a person employed to do any act for another or to represent another in dealings with third persons. The person who is so represented for whom this act is done, is called the “principal” Explain.

1. INTRODUCTION

If we want to understand about AGENCY relationship, first we need to define PRINCIPAL  & AGENT. In simple words- If someone appoints/hires another person to do a job as his/her representative, s/he will be known as a PRINCIPAL and the person appointed/hired will be the AGENT. The relationship will be known as an AGENCY. An Agency can be defined as a promise between two parties (Principal and Agent) which is enforced by law. Thus it is known as a Contract which creates the relationship between both the parties.  A much known definition of AGENT and PRINCIPAL is-

 “An “agent” is a person employed to do any act for another or to represent another in dealings with third persons. The person who is so represented for whom this act is done, is called the “principal”.”[1]

 1.1 Principal

When a person binds another person in a contract to do works on behalf of him/her, s/he is known as a PRINCIPAL[2]. This person mutually gives his/her consent[3] to the fact that another party is doing a job which was supposed to be done by him/her initially. S/he is the one who is responsible for regulating the deeds of his/her agent. So if the agent is held responsible for something, it will be the liability[4] of the Principal.

1.2 Agent:

When a person is hired to do a job for a third party on behalf of another person, that person is known as an agent. An agent is the representative of the principal. An agent goes into a contract with a principal for a fixed period of time or for completing a specified job. It is the duty of the principal to notify the agent before taking any kind of measures.

1.3 Agency:

The contractual relationship between the agent and the principal is known as agency[5]. This relationship is bound by law. Like any other legal relationship this contract has to maintain some legal boundaries. It is pre-specified in the contract when and how the contract will mature and what sorts of protective measures will be taken in case of breach of contract.

 2. Explanation and Analysis:

“The Relation between a Principal and agent is entirely CONTRACTUAL one. But TERMINATION of such relationship WITHOUT THE KNOWLEDGE OF THE AGENT may NOT RENDER THE ACT INVALID which has been DONE AFTER THE RECESSION of Contract”

In this given topic several topics can be pointed out to analyze. Firstly it says, principal and agent share a contractual relationship. Contract basically means an agreement between at-least two parties which is bound by law. So both eligible parties have to give their consent to be a mutual relationship where they agree to exchange something which is of some value.

Secondly, the topic mentions termination of contract. This termination can automatically happen after the completion of the work for which the contract was made in the first place or after the expiration of the contract period or due to some legal issues arising for which the contract is revoked and one of the parties end up compensating the other.

Thirdly, the topic mentions the knowledge of the agent. This idea comes to question when the contract is revoked by the principal. Before revoking, it`s mandatory to give prior notice to the agent and the related other parties must also be informed.

The fourth point the topic mentions is whether the “giving prior notice” part should be invalid or not. This idea can flow into two directions. One is-if the contract is revoked by the principal before the expiration of the contract, then the principal must notify the agent. But if the contract is revoked by the principal after the recession of the contract then it is not necessary.

The final point the statement makes is-“Done after the recession of contract”. So. To summarize the whole idea it can be said that to dismiss the promise between the two parties, the principal does not need to give any prior notice to the agent as it was already mention in their contract. And the general idea is-after a certain period of time or completion of work the contract will instantly become annulled.

 2.1 Termination of Agency

When there is a breach of contract by one party, the other party may rescind the contract and need not perform her/his part of obligations under the contract and may sit quietly at home if s/he decides not to take any legal actions. But in case the aggrieved intends to sue the guilty party for damages for breach of contract, s/he has to file a suit for recession of the contract. When the court grants recession, the aggrieved party is freed from all of her/his obligations under the contract; and becomes entitled to compensation for any damage which s/he has sustained through the non-fulfillment of the contract.[6]

Thus, applying to the court for ‘recession of the contract[7]’ is necessary for claiming damages for breach or for availing any other remedy. In practice a ‘suit for recession’ is accompanied by a ‘suit for damages,’ etc. in the same plaint.

It is worth noting that in certain cases a suit for ‘recession of the contract’ may be filed even when no damages are to be claimed, for example, in case of pledge of movable goods, say gold ornaments, if the pledger does not pay as per agreement, the pledge may file a suit for recession of the contract (of course within the period of limitation which is 30 years in this case), in order to free himself from his obligation to return the ornament on payment and to become entitled to sell the ornaments in order to realize his debt.

Damages are a monetary compensation allowed to the injured party for the loss or injury suffered by her/him as a result of the breach of contract. The fundamental principle underlying damages is not punishment but compensation. By awarding damages the court aims to put the injured party into the position in which s/he would have been, had there been performance and not breach, and not to punish the defaulter party.

An agency can be terminated by act of parties or by operation of law. An agent’s authority can be terminated at any time. If the trust between the agent and the principal has broken down, it is not reasonable to allow the principal to remain at risk in any transaction that the agent might conclude during a period of notice.[8] There can be various ways of terminating an agency. They are-

2.2. Termination by the parties involved: The principal may terminate[9] an agency by notice. Similarly, the agent may, by notice, renounce agency. The termination process can be expressed or implied. If any parties fail to give prior notice, they are entitled to compensate the other party.[10]

     2.3. Termination by Execution of Law:  An agency can be terminated by execution of law in following cases

• Passing of time: after expiration of a contract (if the contract was for a certain period of time), the agency contract dissolves automatically even if the agents business is not complete.
• After completing the business: Usually an agent is hired when the principal can not do or does not wish to do a specific task for any reason. So, to do the work on his/her behalf s/he hires another party (agent). When the agent completes the specific task, the contract between them comes to an end.[11]
• Expiration of one of the parties: in some inevitable cases where one of the parties expires the contract becomes annulled.
• Insanity of one of the parties: If during the execution period of the contract, one of the parties loses his/her mental sanity, the future of the contract becomes complicated. It becomes complicated because if an agent becomes insane, the contract automatically comes to an end [12] But if the principal loses his mind after starting the contract, it is the duty of the agent to take necessary steps to protect the interests of the former principal.[13]
• Insolvency of the principal: Once the contract is executed, if the principal becomes renowned as insolvent or announced as bankrupt, the contract immediately dissolves. But what will happen if instead of the principal the agent is bankrupt, is not articulated in the contract law.[14]
• Extinction of the subject: If the agency contract was initially created to handle a particular subject, destruction of the subject renders the contract terminated.
•  The Parties becoming enemies: If in some extreme cases the principal and the agent is from different countries and suddenly political disruption takes place between them like-war, the mutual understanding between them expires and they becomes enemies and the contract of law is terminated.

Therefore as discussed above, recession of contract is entered due to non-performance of agent. As such the agent has not performed her/his contractual obligations and due to this has handed the principal the right to rescind the contract. When the court grants recession, the principal is freed from all of her/his obligations under the contract and the termination of the principal-agent relationship is evoked even if the agent has no knowledge of the development. Consequently the contract and the act outlined by the contractual agreement will be rendered invalid.

2.4. Certain situation in which Termination of agency takes place:

“When termination of agent’s authority takes effect as to agent, and as to third persons.-The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes known to him, or, so far as regards third persons, before it becomes known to them.”[15]

 By this statement it is meant that whenever the principal revokes the authority of the agent, it has to be made sure that all the parties involved (principal, agent, third parties etc) has to be conveyed the termination message properly. From the time, when everyone, who has any kind of interest regarding the contract, is knowledgeable about the given circumstances and revocation, the termination of contract will be effective. In some cases, after getting the formal revocation notice from the principal, if the agent finds out that the third parties involved are yet to be notified about the termination, the agent can bind the respective principal towards the third parties.

 2.5.Duties/Obligation of Principal after recession of contract

Recession of contract is entered due to non-performance of agent. As such the agent has not performed her/his contractual obligations and due to this has handed the principal the right to rescind the contract. When the court grants recession, the principal is freed from all of her/his obligations under the contract and the termination of the principal-agent relationship is evoked even if the agent has no knowledge of the development. Consequently the contract and the act outlined by the contractual agreement will be rendered invalid.

 3. Conclusion:

From the research we can agree that the contract of agency has to be terminated by one party giving prior notice to another. Otherwise the disadvantaged party has to be compensated. However, if we observe the other provisions of the termination of the agency contract, we see that after passing of the contract period, the contract automatically expires and in this case, the contract term is pre-specified, known to all the parties involved.

We also know that, the termination of the agency takes effect whenever revocation becomes known the agent. Even when the agency is expired because of the death of the principal or his insolvency or insanity, the agent`s knowledge of such event is required for the termination to take into effect. However it is not applicable for the termination due to expiration of contract term. Since the contract term is pre-specified and already known even before the contract is initiated, no further notice or consent is required. In such case, none of the parties needs to be compensated.

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http://lsr.nellco.org/harvard_olin/323