In a contract of agency, a person appoints another to act on his behalf with the third party it is called ‘Agency’. According to Section 183 of the said Act, Principal must be competent to contract. Any person may be an agent (Section 184). According to Section 185, in the contract of agency, consideration is not necessary. Termination of agency means putting an end to the legal relationship between principal and agent. Section 201 to 210 of the Indian Contract Act 1872 lay down the provision relating to the termination of Agency.
As above said termination of agency means putting end to the legal relationship between principal and agent. Section 201 to 210 of the Indian Contract Act 1872 lay down the provision relating to the termination of Agency.
Section 201, Indian Contract Act 1872 provides for termination of an agency –
An agency is terminated by the principal revoking his authority, or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.
Agency may be terminated two ways –
1) By the Act of the Parties
2) By Operation of Law
1) By the act of the parties –
i) By agreement – The Contract of Agency can be terminated at any time by mutual agreement between the principal and agent.
ii) By revocation of the principal – The Principal revoke agency at any time by giving notice to the agent.
iii) By Renunciation of an agent – Renunciation which means withdrawing from responsibility as Agent. Like Principal, Agent can also renounce the agency. According to Section 206 of the Indian Contract Act 1872, the agent must give to his Principal reasonable notice of renunciation. Otherwise, he will be liable to make good for the damage caused to the principal for want of such notice.
2) By operation of law –
Agency can be terminated by operation of law-
i) By the completion of agency – Agency can become to an end after the completion of work for which the agency is created.
ii) By expiry of the time – Agency can also be terminated by the expiry of time. if the agency is created for the specific period, it is terminated after the expiry of the time.
iii) Death or insanity of principal or agent – Section 209 of the Indian Contract Act 1872 imposes an agent, duty to terminate the contract of agency on the death of the principal. In other words, Agency comes to an end on the death or insanity of the principal or agent.
iv) Insolvency of principal – According to Section 201 of the Indian Contract Act 1872, an insolvent or bankrupt is a person who is unable to run the business due to Excess of liabilities over assets. In this way, if the principal becomes an insolvent agency can be terminated.
v) Destruction of the subject matter – If this subject matter of the agency is destroyed agency comes to an end.
For example – Any agency is created for sale of an Airplane if the Airplane caught fire before the sale the agency comes to an end. In this contract Airplane is the subject matter.
vi) Principal becoming an alien enemy – If the Principal becomes an alien enemy the contract of agency comes to an end. vii) Dissolution of company or firm – A Firm or company may be regarded as a Principal in the contract of Agency. If the company or firm is dissolved the agency comes to an end.
Relationship between Principal agent and sub agent
Relationship between principal agent and sub-agent depends on the question whether the agent has an authority to appoint sub-agent and whether the sub-agent is properly appointed.
If then sub-agent is properly appointed:
1) The principal is bound by and responsible for the acts of a sub agent;
2) the agent is responsible to the principal for the acts of the sub-agent;
3) the sub agent is responsible for his acts to the agent, but not to the principal except in case of fraud or willful wrong.
It is of interest to observe clause (3) above. Sub-agent is responsible and accountable to the agent and not to the principal by clause (1). Principal is liable for acts of the sub-agent if he is properly appointed. Sub-agent is not responsible to the principal because there is no privity of contract between the principal and sub agent. It is case of fraud or willful wrong that the principal can proceed against the sub-agent. Principal can, however, against the agent for acts of a sub-agent. As far as the rights of a third party are concerned, he can enforce the wrongs of a sub-agent on the principal if the sub-agent is properly appointed. Principal is therefore liable for acts of the sub-agents if he is properly appointed.
If the sub-agent is not properly appointed: Where an agent has appointed a person to act as sub agent without having authority to do so, the principal shall not be deemed to be represented or responsible for the acts of the sub-agent so employed, nor is such a sub-agent responsible to the principal. The agent is responsible for the acts of such a sub- agent both to the principal and to third persons.
Sub-agent is said to be improperly appointed where agent delegates his powers without authority from the principal or where none of the circumstances stated above exist which necessitate appointment of a sub agent.
It will be observed that where a sub-agent is not properly appointed, the liability of agent is also towards third parties. As a rule, we have seen that an agent is responsible to the principal and it is the principal who is responsible for the acts of his agent to the third party. However, the section throws additional liability on the agent where he has improperly appointed a sub-agent. Agent stands liable to the third party for the acts of a sub-agent.
Termination of sub-agent’s authority: (Sec 210) Lastly it must be noted that the termination of the authority of an agent causes the termination of the authority of all sub-agents appointed by him
Liabilities of principal, agent and sub-agent: The agent is responsible to the principal for the acts of a sub-agent and the sub-agent is responsible for his acts to the agent but not the principal, except in cases of fraud and willful wrong.
Where an agent improperly appoints a sub-agent, the agent is responsible for his acts both to the principal and to third parties. The principal in such cases is not responsible for the acts of the sub-agent nor is the sub-agent responsible to the principal. But where a sub-agent is properly appointed, the principal as regards third person, is represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal.
Where an agent under an express or implied authority has named another person to act for the principal, such a person is not a sub-agent, but an agent of the principal. There is no liability on the agent appointing him provided the agent so appointing exercises discretion as a man of ordinary prudence would exercise is his own case (Sec 194 & 195). Such an agent is called a substitute agent.