“Termination of agency can occur when the purpose is already achieved and both of the parties want to terminate the relationship by mutual agreement, or because of death or insanity of either parties, etc”Discuss.

1. 1.    Introduction

According to section 182 of the Contract Act, an agent is a person employed to do any act for another or to represent another in dealings with third person, and that the person for whom such an act is done, or who is so represented, is called the principal.[1] The relationship between a principle and an agent is called agency[2]. Agency exists whenever a person can bind another by acts done on his behalf. The relationship cannot be considered as agency in the absence of this power. There is agency law that defines the relationship between these two parties.

1. 2.    Formation of the Agency Relationship

Generally, no formalities are required to form an agency. Full contractual capacity is not essential to make a person to represent another as agent. A minor can be an agent,[3] although his incapacity may shield him from liability to his principal. But no one can enter into a contract through an agent which is outside his (the principal’s) contractual capacity.[4] Section 183 of the Contract Act 1872[5] defines who may employ agent, “Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent”. In addition, Section 184 of the Contract Act 1872[6] defines who may be an agent, “As between the principal and third persons any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principle according to the provisions in that behalf herein contained”. The agency relationship can arise by one of several methods such as agreement, ratification, or estoppel.

1. 3.    The Relations between the Principal and Agent

The relations of the principal and agent are comprised of the ordinary relations of employer and employed, and of those which rise from the special business of an agent to bring two parties together for the purpose of making a contract—to establish privity of contract between his principal and third parties.

The rights and duties of the principal and agent depend upon the terms of the contract, whether express or implied, which exists between them. But in addition to these specific provisions, the mere existence of the relationship raises certain rights and duties on both sides.

1. a.     Rights of the Principal against the Agent

The agent is bound, like every person who enters into a contract of employment, to account for such property of his principal as comes into his hands in the course of the employment. He must keep accurate accounts of the transactions into which he enters on his principal’s behalf,[7] and produce them on demand to his principal.[8]

The agent must also use ordinary diligence in the discharge of his duties. If the agency is gratuitous, he is expected only to employ as much skill as he would in the conduct of his own affairs; but a somewhat higher standard is required of him if the agency is for reward.[9] He must further display any special skill or capacity which he may profess in relation to the work in hand.[10]

There are, besides these ordinary duties relating to employer and employed certain other duties owed by the agent to the principle which arise from the fiduciary nature of the relationship between them.

First, the agent must not, except with the knowledge and assent of his principle, make any profit from the transactions into which he may enter on behalf of his principle[11] or from confidential information acquired by him in his capacity as agent.[12] It is immaterial that the principle has suffered no injury, or that the agent has acted throughout in good faith. Any such profit made must be paid over to the principle.

Secondly, the agent must not put himself in a position where his duty and interest conflict unless he has made full disclosure of his interest to his principle, specifying its exact nature and obtaining his assent.

Thirdly, the agent may not, as a general rule, depute to another person that which he has undertaken to do.[13] The reason for his rule, and its limitations, are thus outlined by Thesiger L.J. in De Bussche v. Alt.[14]

1. b.     Rights of the Agent against the Principal

The principal must pay the agent such commission or reward as may be agreed upon between them. In the absence of any agreement, express or implied, the agent is not entitled to any reward,[15] although the employment of a professional agent raises a presumption that he is to be remunerated.[16] Indeed, an agreement to pay remuneration will be implied whenever a person is employed to act as agent under circumstances which raise the presumption that he would, to the knowledge of the principal, expect to be paid.[17]

Before he becomes entitled to his remuneration, the agent must have carried out the duties, or fulfilled the conditions, stipulated for in the agreement. In particular, if the remunerations takes the form of a commission, he is not entitled to the commission until the event on which the commission is payable comes about.

The principal must also reimburse the agent for all expenses, and indemnify him against all liabilities and claims, which the agent has reasonably incurred in the execution of his duties.[18] These rights of reimbursement and indemnity extend to cases where the agent has occasioned liability by an honest mistake,[19] but not where they have arisen from his breach of duty or default.[20]

1. c.      Limitations on the Principal’s Rights and Liabilities

There are certain situations in which, although the agent contracts within his authority, the principal acquires no rights or liabilities under the contract.

First, it is still technically the rule that, if an agent makes himself a party to a deed on behalf of another, his principal can not sue or be sued on the deed unless he is described in the deed as party to it, and the deed is executed in his name.[21]

Secondly, it was once thought to be rule of law that a foreign principal could not sue or be sued on a contract entered into on his behalf, the agent only being liable on the contract.[22] But in modern conditions of trade this rule has no validity.[23]

Thirdly, a principal is not liable upon any bill of exchange or negotiable instrument unless his name is signed thereon;[24] but if it is signed there by an agent acting under his authority, he will be liable.[25]

In fact, the only substantial limitations upon the principal’s rights and liabilities are those which are imposed in the case of an ‘undisclosed principal’, i. e. where the fact of the agency is not disclosed to the other party at the time that the contract is made. Normally where an agent acts on behalf of a principal whose existence he does not, at the time, disclose, the principal can, when discovered, sue and be sued under the contract.

But the right of the undisclosed principal to intervene as a contracting party is subject to certain limitations.[26] First, intervention is excluded if the agent has contracted in terms which import that he is the real and only principal, for then the idea of agency is incompatible with the terms of the contract. Secondly, where the personality of the agent is of such importance that the contract must be taken to have been made with him alone, no other person can interpose adopt the contract.[27]

1. 4.    Termination of Agent’s Authority

An agent’s authority may be terminated in one of two ways— (a) by act of the parties, and (b) by operation of law. In certain circumstances, however, it will be irrevocable.

1. a.     By Act of the Parties

The relation of principal and agent is generally founded on mutual consent, and may be brought to a close by the same process which originated it, by agreement.

It may also be determined, so far as the principal and the agent are concerned, by an express revocation on the part of the principal, or an express renunciation on the part of the agent, although this will not affect the rights of the third parties under the doctrine of ostensible authority.[28]

The principal may expressly or impliedly contact not to revoke the agent’s authority during a fixed period, or until the agent has carried out the act which he has been authorized to do. The authority will be affectively revoked in the sense that the agent will not be allowed to continue to act as if it were still in existence. But the principal will be compelled to pay the agent damages for breach of contract, or to indemnify him against any liability already incurred. The revocation is therefore effective, but unlawful.

1. b.     By Operation of Law

There are certain circumstances which will put an end to the relationship of principal and agent by operation of law.

1.         i.            Bankruptcy

The bankruptcy of the principal[29] or the agent[30] will determine an agency for most purposes.

1.       ii.            Frustration

An agency which is created to deal with certain subject-matter will normally be frustrated by the destruction of that subject-matter.[31] So, for example, if an agent is employed to effect an insurance on a particular piece of property, and the property is destroyed by fire, the agency determines. Also on the out break of war, where either the principal or the agent becomes an enemy, the authority of the agent normally ceases on the ground that it is not permissible to have intercourse with an enemy alien, and the existence of the relationship of principal and agent necessitates such an intercourse.

1.     iii.            Death

The death[32] [or if the principal is a corporation, the dissolution][33] of the principal determines at once the authority of the agent, leaving a third party to his remedy against the agent for breach of warranty of authority. It is not necessary for the agent to have notice of the death, so that he may become liable for such breach of warranty, even though he was ignorant of the fact that his authority determined by the death and he had no means of finding out that this was so.[34]

1.      iv.            Insanity

The effect of the insanity of the principal is a matter of some insanity difficulty. In Yonge v. Toynbee.[35] Although insanity puts an end to the agency as between principal and agent, it can have no effect on third parties who continue to contract in the belief that the agency is still in existence. The principal is stopped from denying the authority of the agent unless and until the third party becomes aware of the revocation.

1. c.      Irrevocable Authority

The authority given to an agent may become irrevocable in three main instances— (i) when it is coupled with an interest, (ii) when it is contained in a power of attorney, (iii) when revocation would cause the agent personal loss.

1.         i.            Authority coupled with an interest

An authority coupled with an interest is irrevocable during the subsistence of the interest. This rule has been explained by Wilde C.J. to mean that ‘where an agreement is entered into on a sufficient consideration, where by an authority is given for the purpose of securing some benefit to the donee of the authority, such an authority is irrevocable.’[36] But authority must be given with the object of protecting or securing an interest of the agent, and it is not sufficient that it does so incidentally.

1.       ii.            Powers of attorney

An instrument creating a power of attorney must be made under seal.[37] Where a power of attorney is expressed to be irrevocable and is given to secure a proprietary interest of the donee of the power, or the performance of an obligation owed to the donee, then, so long as the donee has that interest or the obligation remains undischarged, the power can be revoked by the donor without the consent of the donee, or by the death, incapacity, bankruptcy, winding- up or dissolution of the donor.[38]

1.     iii.            Agent liable to personal loss

Where the agent has, in pursuance of his authority, contracted a personal liability or become liable to personal loss, the agency cannot be revoked by the principal without his consent, for this would be to defeat rights already established. The liability incurred by the agent may either be a legal liability, as where he binds himself by contract to pay to a creditor of his principal a debt which he has been authorized to receive;[39] or it may simply be a loss which is likely to occur. The liability or loss must have been in the contemplation of the parties at the time that the authority was conferred.[40]

1. 5.    Conclusion

From the above discussion we can draw a conclusion that termination of agency can occur in many ways. It can be done when the purpose is already achieved and both of the parties want to terminate the relationship by mutual agreement, or because of death or insanity of either parties, etc. However, principal’s power to terminate the agent’s authority is limited in certain circumstances. It is evident from the Section 202[41] of the Contract Act 1872 that a principle cannot terminate an agent, without express contract, if the agent himself has an interest in the property which forms the subject-matter of the agency. Moreover, in Section 204[42] of the Contract Act 1872, it is apparent that the principal is also restrained from revoking the authority of the agent if the authority is partially exercised due to the obligations that arise from acts already done in the agency. Section 205[43] proposes that principal’s liability to compensate to the agent for revocation, given that there was an express or implied contract which came to hold for a period of time. Finally, Section 206[44] and Section 207[45] states that revocation can appear in both express and implied form and prior notice must be given before revocation, otherwise the principal may be hold liable for the damage.

1. 6.    Bibliography
   1. Chowdhury, O. H. (1992). Contract act XII of 1872 (2^nd ed.). Dhaka: Dhaka Law Reports.
   2. Guest, A. G. (Eds.) (1979). Anson’s law of contract (25^th ed.). London: Oxford University          Press.
   3. Keenan, D., & Smith, K. (1985). Mercantile law (6^th ed.). London: Pitman Publishing.
   4. Bohlman, H. M., Dundas, M. J., & Jentz, G. A. (1989). The legal environment of business.        New York, NY: West Publishing Company.
   5. Sen, A. K., & Mitra, J. K. (2006). Commercial law including company law and industrial law.    Kolkata: World Press Private Limited.
   6. The Contract Act, 1872. Retrived from http://bdlaws.minlaw.gov.bd/print_sections_all.          php?id=26.
   7. Ministry of law, justice and parliamentary affairs. (2008). The Contract Act, 1872.  Retrieved             from http://www.businesslaws.boi.gov.bd/components/com_eregistry/attach/29.
   8. Meiners, R. E., Ringleb, A. H., & Edwards, F. L.(nd.) The legal environment of business. New   York, NY: West Publishing Company.
   9. Indian Contract Act 1872 (2012, February 18). Retrieved from http://en.wikipedia.org/       wiki/Indian_Contract_Act_1872.
   10. The Lawyers & Jurists (2012). Retrieved from http://www.lawyersnjurists.com.