1. Introduction
The relation between a principal and an agent is a contractual one. According to termination principal has the supreme power. The influence of principal is more in principal-agent relationship. A person who is employed to do any act for another or to represent another in dealing with the third person is called an agent. Agent acts in place of another. An agent is liable to a principal when he/she acts without actual authority, but with apparent authority. An agent is liable to indemnify a principal for loss or damage resulting from his/her act. Principal has the legal capacity to perform an act and empower an agent to carry out that act. Principals may be Persons, corporations, partnerships, not-for-profit organizations, and government agencies and they appoint agents.
1.1 The relationship between a principal and an agent is called Agency. An agency is the creation of a contract through mutual consent between a principal and an agent[1]. A principal grants authority to an agent to act on behalf of and under the control of the principal by agency. The relationship between a principal and an agent is fiduciary and principal binds the agent’s actions. The agent has to be loyal to the principal. The law of agency governs the legal relationship in which an agent deals with a third party for his/her principal.
1.2 Contract is made by an agent on behalf of a principal. Contract allows the principal to authorize agent to carry out her duties for a specific purpose. The agency relationship can be informal agreement or by formal agreement .An agency contract to be performed to the principal’s satisfaction can generally be canceled at will by the principal. A power of attorney constituting a mere agency can be revoked at any time, with or without cause.
1.3 Principal can terminate the agency relationship at any time, it’s a general rule. The act of a principal is a revocation of authority. Without giving prior notice a principal can terminate agency relationship. If the trust between the Agent and Principal has broken down, the relationship between a principal and agent may be terminated. The relation of principal and agent can be terminated by the act or agreement of the parties to the agency or by operation of law.[2] Through Novation(substitution), Recession (cancellation), Alteration by subsequent impossibility ,by operation of law and by breach of contract a contract may be terminated.[3] As soon as agent commits a breach of the contract, the principal becomes entitled to do Recession of the contract.
2. Explanation of principal agent relationship through the law of act 1872-
2.1 Through the parlance of law of contract Act 1872, I will explain that the termination of a principal-agent relationship without the knowledge of the may not render the act invalid which has been done after the recession of contract. Any individual capable of comprehending the act to be undertaken is qualified to serve as an agent. Since agent is a mere connecting link between the principal and the third party, it is immaterial whether or not the agent is legally competent to contract. In considering the contract of agency (the relation between principal and agent), the agents contractual capacity becomes important. No person who is not of the age of majority and of sound mind can become agent, as to be responsible to his principal (Sec.184).
2.2 According to the law who is the age of maturity to which he is subject and who is of sound mind, can employ agent (Sec.183). [4]No qualifications as such are prescribed for a person to be agent except that he has attained majority and is of sound mind. A minor or a lunatic cannot contract through agent since they cannot contract themselves personally either. He will be personally liable to the third party, if the agent acts for a minor or lunatic. An agent has many duties to perform on behalf of principal. Such as, an agent acts on behalf of the principal and works under the control of the principal. Within the scope of authority or power delegated by the principal an agent acts. Agent discharges his/her duties with appropriate care and diligence; and avoids conflict between his/her personal interests. An agent is liable to a principal when he/she acts without actual authority, but with apparent authority. An agent is liable to indemnify a principal for loss or damage resulting from his/her act.
2.3 Towards the principal, the duties of an agent are-[5] Through the direction of a principal conducting the business of agency-The duties of the agent must be literally complied with the agent is not supposed to deviate from the directions of the principal even for the principal’s benefit. If he does so, any loss occasioned thereby shall have to be borne by the agent, whereas any surplus must be accounted for to the principal. With the skill and diligence an agent should conduct the business. The agent has to render proper accounts. If the agent fails to keep proper accounts of the principal’s business, everything consistent with the proved facts will be presumed against him. Rendering of accounts does not mean showing the accounts, but maintaining proper accounts supported by vouchers.
2.4 In case of difficulty communicate with the principal- (Sec.214). [6]In case of difficulty, an agent has to use all reasonable diligence, in communicating with his principal and in seeking to obtain his instructions. In case of emergency, the agent can do all that a reasonable man would, under similar circumstances, do with regard to his own business. Agent should be loyal to principal and deliver to the principal all moneys including secret commission received by him. He only can deduct his lawful expenses and remuneration.
Not to deal on his own account– Without the consent of principal agent should not deal with his own account. If he does so, the principal can claim from the agent any benefit which he might have obtained.
Example: Rezwan directs Amir, his agent, to buy a particular house for him. Amir tells Rezwan that it cannot be bought, but buys the house for himself. Rezwan may, on discovering that Amir has bought the house, compel him to sell it to Rezwan at the price he bought.
Agent who is guilty of misconduct in the business of agency is not entitled to any remuneration in respect of that part of the business which he has misconduct. Not to disclose of confidential information to him by the principal.
Agent has a number of rights such as -1.Right to remuneration (Secs.219-220) [7]2. Right of retainer (Sec.217) .3 Right of lien (Sec.221). 4. Right of stoppage in transit[8]. 5. Right of indemnification (Secs.222-224).[9]
3. Principals power in the law of act 1872
3.1 Principal can be any person who has the legal capacity (meaning that they are not insane, or in certain circumstances a minor) to perform an act and empower an agent to carry out that act. Principal can be classified in 3 ways-
| Disclosed principal-at the time of the transaction made by the agent with the third party, the latter knows that the person he is dealing with is acting as an agent and also known as the principal’s identity.
Undisclosed principal-The person acting as an Agent represents they are acting on their own behalf and does not disclose the existence of the agency relationship. This is usually because the Principal is wealthy and believes that money can be saved on the proposed deal if their involvement is hidden. Partially disclosed principal- at the time of the transaction, the Third Party knows that the person he is dealing with is acting as an Agent but does not know the Principal’s identity. |
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3.2 There are many duties of a principal, such as-principal is (I) bound to indemnify the agent against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him (Sec.222); (ii) liable to indemnify agent against the consequences of an act done in good faith, though it causes an injury to the rights of third persons (Sec.223); (iii) bound to compensate his agent in respect of injury caused to such agent by the principal’s neglect or want of skill (Sec.225).
Principal-Agent relationship is the understanding that the agent will act for and on behalf of the principal. The agent assumes an obligation of loyalty to the principal that she will follow the principal’s instructions and will neither intentionally nor unintentionally act improperly in the performance of the act. An agent cannot take personal advantage of the business opportunities the agency position uncovers. These obligations bring forth a fiduciary relationship of trust and confidence between principal and agent.
Good communication can ensure that an agency agreement operates without difficulties and to the mutual advantage of both parties. Many legal agency disputes arise because of lack of communication between a principal and agent. The principal will need to monitor the performance of the agent.
There are many Kinds of Agencies- 1 Express agency (Sec.187) [10]– A person may be appointed as agent, either by word of mouth or by writing. No particular form is required for appointing agent.
2 Implied agencies (Sec.187) – Implied agency arises from the conduct, situation or relationship of parties. Implied agency, therefore, includes agency by estoppels, agency by holding out and agency of necessity.
3 Agency by estoppels (Sec.237) – The principal is precluded from denying the truth of agency which he himself has represented as a fact, although it is not a fact.
4 Agency by holding out- some affirmative conduct by the principal is necessary in creation of agency by holding out.
5 A special agent is a person appointed to do some particular act or enter into some particular contract. A special agent, therefore, has only a limited authority to do the specified act. If he does anything beyond the specified act, he runs the risk of being personally liable since the principal may not ratify the same.
Agency by Express Agreement[11]: when by spoken or written words an express authority is given to an agent then agency by express agreement created.
Agency by Estoppels[12]: Agency by estoppels arises where a person by his words or conducts third persons to believe that a certain person is his agent.
4. An agency relationship may be terminated by act of parties in a number of ways, some of this are-
Lapse of Time– An agency agreement may specify the time period during which the agency relationship will exist. The agency ends when that time expires. If not definite time is stated, then the agency continues for a reasonable time and can be terminated at will by either party. What constitutes a reasonable time depends on the situation and the nature of the agency relationship.
Purpose Achieved–An agent can be employed to accomplish a particular objective, such as the purchase of stock for a cattle rancher. In that situation, the agency automatically ends after the cattle have been purchased. If more than one agent is employed to accomplish the same purpose, such as the sale of real estate, the first agent to complete the sale automatically terminates the agency relationship for all the others.
Occurrence of a Specific Event– An agency can be created to terminate on the happening of a certain event.
Mutual Agreement-A contract may be terminated through mutual agreement. In agency law, regardless of whether the agency contract is in writing or whether it is for a specific duration. Agreement to terminate effectively relieves each of the rights, duties, and powers inherent in the relationship.
Some of agency agreements are for an indefinite period. The agent is appointed and there is no provision that it is for one year, two or five years etc. In such cases either party may terminate the agency by notice under regulation. The relationship of principal and an agent can be terminated by the act or agreement of the parties to the agency or by operation of law. “An agency, when shown to have existed, will be presumed to have continued, in the absence of anything to show its termination, unless such a length of time has elapsed as destroys the presumption. An agency contract is performed to the principal’s satisfaction can generally be canceled at will by the principal. Similarly, a power of attorney constituting a mere agency may be revoked at any time, with or without cause. The principal can cancel the agency contract for any justifiable cause.
Agency contract can be terminated by Operation of Law[13]: Certain events will terminate agency authority automatically because their occurrence makes it impossible for the agent to perform or improbable that the principal would continue to want to performance. Some of these events are here. When an agency terminates by operation of law, there is not duty to notify third person’s unless the agent’s authority is coupled with an interest.
Death or Insanity– the death of insanity of the agent automatically and immediately terminates an ordinary agency relationship. Knowledge of the death or insanity is not required.
Impossibility[14]-, the agency terminates, when the specific subject matter of an agency is destroyed or lost. Similarly, when it is impossible for the agent to perform the agency lawfully because of war or a change in the law, the agency terminates.
Changed Circumstances– When an event occurs that has such an unusual effect on the subject matter of the agency that the agent can reasonably infer that the principal will not want the agency to continue, the agency terminates.
Bankruptcy-If the principal petitions for bankruptcy, the agency are usually terminated. In certain circumstances, as when the agent’s financial status is irrelevant to the purpose of the agency, the agency relationship may terminate. Insolvency (defined as the inability to pay debts when they become due or when liabilities exceed assets), as distinguished from bankruptcy, does terminate the agency relationship.
War– When the principal’s country is at war, agency relationship terminates. In this situation, the agency is automatically suspended or terminated because there is no way to enforce the legal rights and obligations of the parties.
5. Agency terminates or comes to an end (SEC.201) under these circumstances-[15]
By the principal revoking the agency– The principal can revoke the authority of the agent at any time. Where the agent is appointed to do a single act, agency may be revoked any time before the commencement of the act. In case of a continuous agency, notice of revocation is essential to the agent as well as to the third parties who have acted on the agency with the knowledge of the principal.
On the expiry of fixed period of time– When the agency is for a fixed period of time, it comes to an end on the expiry of that time.
By the business of agency being completed- Where agent is appointed to do a particular act, agency terminates when that act is done or when the performance becomes impossible.
An agency contract also terminate in case the subject matter is either destroyed or rendered unlawful.
By the principal being adjudicated insolvent (Section 201 of The Indian Contract Act. 1872)-Insolvency of the principal, not of the agent, terminates the agency.
By the agent renouncing the business of agency- If principal can cause termination of agency by revocation, agent may renounce his agency by giving a sufficient notice to that effect. Where, however, agency is for a fixed period and the agency is renounced without a sufficient cause, the principal must be compensated (Sec.205).we can take case example of Simpson v Grant & Bowman Ltd [2006] Eu LR 933.
6. Conclusion
The law of agency is concerned with the external business relations of an economic unit and with the powers of the various representatives to affect the legal position of the principal. On the other hand, it rules the internal relationship between principal and agent as well, thereby imposing certain duties on the representative such as diligence, accounting, good faith, etc.
When the principal case is concerned, principal has the supreme power to revoke the agent’s authority, but with his right to do so under the agency contract. So, Principal can terminate the agency relationship at any time without giving prior notice.
Bibliography
http://www.ruf.rice.edu/~schuler/principal-agent.html
http://en.wikipedia.org/wiki/Agency_agreement
http://agency.uslegal.com/duration-and-termination-of-agency/
http://www.legalmatch.com/law-library/article/termination-of-an-agency-relationship.html
http://www.artslaw.com.au/info-sheets/info-sheet/agency-agreements/
http://www.4shared.com/linkError.jsp?nowww=197
Michigan Law Review, Vol. 55, No. 8 (Jun., 1957), pp. 1166-1168
Michigan Law Review, Vol. 46, No. 1 (Nov., 1947), pp. 112-114
http://www.jstor.org/pss/2951674
http://en.wikipedia.org/wiki/Law_of_agency
http://www.vakilno1.com/bareacts/indiancontractact/indiancontractact.html
Merchant v. Foreman, 182 Kan. 550, 555 (Kan. 1958)
Tabor v. Mason Dixon Lines, Inc., 196 Tenn. 198 (Tenn. 1953)
Cinefot International Corp. v. Hudson Photographic Industries, 13 N.Y.2d 249, 252 (N.Y. 1963)
Beaucar v. Bristol Federal Sav. & Loan Asso., 6 Conn. Cir. Ct. 148, 159 (Conn. Cir. Ct. 1969)
Restat 3d of Agency, § 8.02
Restat 3d of Agency, § 8.08
Restat 3d of Agency, § 8…09
[1] Contract allows the principal to authorize agent to carry out her duties for a specific purpose. The agency relationship can be informal agreement or by formal agreement .An agency contract to be performed to the principal’s satisfaction can generally be canceled at will by the principal.
[2] Through Novation(substitution), Recession (cancellation), Alteration by subsequent impossibility ,by operation of law and by breach of contract a contract may be terminated.
[3] Contract allows the principal to authorize agent to carry out her duties for a specific purpose. The agency relationship can be informal agreement or by formal agreement .An agency contract to be performed to the principal’s satisfaction can generally be canceled at will by the principal.
[4] No qualifications as such are prescribed for a person to be agent except that he has attained majority and is of sound mind. A minor or a lunatic cannot contract through agent since they cannot contract themselves personally either. He will be personally liable to the third party, if the agent acts for a minor or lunatic. An agent has many duties to perform on behalf of principal
[5] act on behalf of and be subject to the control of the principal; act within the scope of authority or power delegated by the principal; discharge his/her duties with appropriate care and diligence; and avoid conflict between his/her personal interests.
[6] In case of emergency, the agent can do all that a reasonable man would, under similar circumstances, do with regard to agents own business.
[7] Agent is entitled to his agreed commission or remuneration and if there is no agreement, to a reasonable remuneration. But the remuneration does not become payable unless he has carried out the object of agency, except where there is a contract to the contrary. When the object of agency is deemed to have been carried out or the act assigned to the agent is completed would depend on the terms of the contract.
[8] Agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business and also such remuneration as may be payable to him for acting as agent. This is known as agent’s right of retainer.
[9] Agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business and also such remuneration as may be payable to him for acting as agent. This is known as agent’s right of retainer.
[10] A person may be appointed as agent, either by word of mouth or by writing. No particular form is required for appointing agent. The usual form of a written contract of agency is the power of attorney on a stamped paper.
A person may be appointed as agent, either by word of mouth or by writing. No particular form is required for appointing agent. The usual form of a written contract of agency is the power of attorney on a stamped paper.
[11] An agency by express agreement is created when by spoken or written words an express authority is given to an agent. This agreement is done by the principal who has the power.
[12] Agency by estoppels arises where a person by his words or conducts third persons to believe that a certain person is his agent. Here, third person works for a agent.
[13] Certain events will terminate agency authority automatically because their occurrence makes it impossible for the agent to perform or improbable that the principal would continue to want to performance. Some of these events are here. When an agency terminates by operation of law, there is not duty to notify third person’s unless the agent’s authority is coupled with an interest.
[14] The agency terminates, when the specific subject matter of an agency is destroyed or lost. Similarly, when it is impossible for the agent to perform the agency lawfully because of war or a change in the law, the agency terminates.
[15] The agent’s duty to act on behalf of the principal comes to an end on the termination of agency. The timeframe for termination of an agency can be stipulated by a particular statute or instrument. In such a case, if the instrument specifies in plain and unambiguous terms that an agency will terminate without action on the part of the principal or agent upon the expiration of the time specified in the instrument, the agency will in fact, terminate.