Termination of Agency – Business Law | Management Notes

Termination of agency implies the end of the relationship between the principal and agent. There are several modes of termination of agency. The NCA, 2056 has made some provisions in this regard under Sections 61, 62 & 64. These provisions have not described all the modes of termination of agency. An agency may be terminated in any of the following ways:

(A) Termination of Agency by acts of the parties   

An agency to be terminated according to the desire or the act of the principal and agent is regarded as the termination of agency by an act of the parties. Fall under this the following modes:-  

  1. By agreement: – An agency, like any other contract, can be terminated at any time by the mutual agreement between the principal and agent. In fact, an agreement brings out an agency which can be terminated by another agreement.
  2. By revocation: – The principal may revoke the authority of the agent at any time, by giving notice to the agent before the agent has exercised his authority to bind the principal. Non-service of notice binds the principal for compensation. The revocation should be based on reasonable ground. If the third party enters into a contract with an agent with good faith without knowledge of revocation, this contract binds the principal.
  3. Renunciation by the agent: – An agent is also not bound to continue agency against his will. Unless otherwise mentioned in the contract if the agent voluntarily decides not to continue agency, serving a reasonable notice to the principal in time he can renounce agency. Lacking notice makes it necessary to compensate the principal. The renunciation must be based on reasonable ground. The agent who renounces the agency has no right to claim remuneration for his performed work.
  4. By completion of work: – When the parties perform their respective duties, the agency comes to and. Unless otherwise mentioned in the contract, if the agent has been appointed for any specific work, the agency is terminated as soon as the work is completed.

(B) Termination of agency by operation of law: 

     An agency which gets automatically terminated due to application of the law is known as termination of agency by operation of law. It includes the following modes: –

    1. By expiry of time S. 61 (1) (d): – Where an agent has been appointed for a fixed term the expiration of the terms puts an end to the agency, whether the purpose of the agency has been accomplished or not.
    2. By death or insanity s.61(c): – Unless otherwise mentioned in the contract, the agency is terminated with the time of the death or insanity of the principal or the agent.
    3. By insolvency of the principal S.59(1) (f): – Unless otherwise mentioned in the contract, if the principal is declared insolvent, the agency is terminated from this declaration. It is not clear in the case of insolvency of the agent in the ICA & NCA but it is also accepted that the insolvency of agent also puts an end the agency business.

    1. By the destruction of the subject matter S.59 (1) (g): – An agency which is created to deal with the certain subject matter will be terminated by the destruction of that subject matter. For example, where the agency was created for the sale of a house and the house is destroyed by fire, the agency ends.
    2. By dissolution of a company S. 59(1) (g):- A company being a legal person comes to end when it is dissolved or liquidated. Unless otherwise mentioned in the contract, the agency is automatically terminated when the principal or agent is a company is liquidated.

  1. By principal or agent becomes alien enemy: – If the principal and agent are nationals of two different countries and a war breaks out between the two countries, the contract of agency is terminated. The outbreak of war renders the continuance of the principal and agent relationship unlawful because of an alien enemy.
  2. By change of law: – Due to the change of law, if the works under a contract of agency become impossible to perform subsequently, the agency put an end.
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