TERMINATION OF AGENT

TERMINATION OF AGENT

Section 154 to 163 of Contracts Act 1950 deal with the manner in which an agent’s authority may be terminated

Sec 154 – agency is terminated by:

• Principal revoking his authority
• Agent renouncing the business of the agency
• Business being completed
• Death of principal or agent
• Insanity of principal or agent
• Bankruptcy of principal or agent

S. 154. 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 or declared a bankrupt or an insolvent

Sec 156 - principal may revoke the authority given to agent at any time before the authority has been exercised so as to bind the principal

When termination takes effect

Sec 161 – 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 person, before it becomes known to them

ILLUSTRATIONS

(a) A directs B to sell goods for him, and agrees to give B 5 per cent commission on the price fetched by the goods. A afterwards, by letter, revokes B’s authority. B, after the letter is sent, but before he receives it, sells the goods for RM100. The sale is binding on A, and B is entitled to RM5 as his commission.

(b) A, at Port Dickson, by letter directs B to sell for him some cotton lying in a warehouse in Kelang, and afterwards, by letter, revokes his authority to sell, and directs B to send the cotton to Port Dickson. B, after receiving the second letter, enters into a contract with C, who knows of the first letter, but not of the second, for the sale to him of the cotton. C pays B the money, with which B absconds. C’s payment is good as against A.

(c) A directs B, his agent, to pay certain money to C. A dies, and D takes out probate to his will. B, after A’s death, but before hearing of it, pays the money to C. The payment is good as against D, the executor.

Two Ways of Terminating an Agency

As mentioned at the above a contract of agency can be terminated either :

(1) by the act of the parties, or

(2) by operation of law.

By the Act of the Parties

The parties to agency, i.e., the principal and the agent, can either revoke or renounce an authority in an agency contract. It therefore can either be:

(1) the principal revoking the authority given, or

 (2) the agent renouncing his authority.

Generally, a principal can revoke the authority given to an agent at any time as he wishes. The revocation can either be express or implied (section 160).

If the principal empowers an agent to let out his house but later lets it himself, a contract of agency is said to be revoked by implication.

Though, the general rule stipulates that a principal can revoke the authority given to an agent at any time as he wishes, he is not allowed to do so if:

(1) part of the job has been done, and

(2) the agent has an interest in the contract.

Part of the Job Has Been Done

Section 157 Contract Act 1950 reads, “The principal cannot revoke the authority given to his agent after the authority has been partly exercised, so far as regards such acts and obligations as arise from acts already done in the agency.” 

READ v ANDERSON [1884] 13 QBD 779

The principal who was the defendant instructed the plaintiff, a turf commission agent, to place bets on his behalf. The plaintiff placed the bets and lost. By custom, a turf commission agent always bets in his own name and becomes solely responsible to the person with whom the bet is made. If he is declared a ‘defaulter’ owing to his failure to pay the lost bet, he is subject to certain disqualifications which will have a serious impact on his business.

It was held that the defendant could not revoke the plaintiff’s authority after losing the bet. He would have to indemnify the plaintiff for the amount which the latter had paid to the person with whom he made the bet.

Irrevocable Agency

An agency coupled with an interest is a special type of agency relationship that is created for the agent’s benefit. This type of agency is irrevocable by the principal (i.e., the principal cannot terminate it). An agency coupled with an interest is not also terminated by the death or incapacity of either the principal or the agent. It terminates only when the agent’s obligations are performed. However, the parties can expressly agree that an agency coupled with an interest is terminated.

Section 155 Contract Act 1950 provides, “Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.”

Illustration

A gives authority to B to sell A’s land, and to pay himself, out of the proceeds, the debts due to him from A. A cannot revoke this authority, not can it be terminated by his unsoundness of mind or death.

In SMART v SANDERS (1848) 5 CB 895, a factor was sent goods to sell on behalf of the principal and he made advances to the principal on the security of these goods. Lord Atkinson in Firth v Firth [1906] AC 254 at p. 261 explained the earlier case in the following manner, “… the general authority of a factor in whose hands goods were placed for sale, to sell at the best price which could reasonably be obtained, could not be revoked after the factor had made advances on the security of the goods to the owner of them and while these advances remained unpaid.”

Notice of Revocation or Renunciation

Reasonable notice must be given in either revocation or renunciation. Otherwise, the damage thereby resulting to the principal or the agent, as the case may be, must be made good by the party in breach to the other. (S.59)

- what would be reasonable notice depends on the facts and circumstances of each case.

Notification Required at the Termination of an Agency

If an agency is terminated by the act of the parties (mutual agreement), the principal is under a duty to give certain third parties notification of the termination. Unless otherwise required, the notice can be from the principal or some other source (e.g., the agent). If an agency terminates by operation of law, there is no duty to notify third parties about the termination, however. 

Termination of an agency extinguishes an agent’s actual authority to act on the principal’s behalf. However, if the principal fails to give the proper notice of termination to a third party, the agent still has apparent authority to bind the principal to contracts with these third parties. If this happens, the contract is enforceable against the principal. The principal’s only recourse is against the agent to recover damages caused by these unauthorized contracts.

By Operation of Law

An agency may also be terminated by operation of law. In other words, it will cease to exist when one of the situations below occurs.

1. Purpose achieved. An agency is terminated when parties to contract perform their obligations.
2. Lapse of time. An agency is terminated when the time specified elapses.
3. Death. An agency is terminated upon the death of either the principal or the agent.
4. Insanity. An agency is terminated upon the insanity of either the principal or the agent.
5. Bankruptcy. An agency is terminated when the principal becomes insolvent or being declared as bankrupt.
6. Impossibility. An agency is terminated if a situation arises that makes its fulfillment impossible.