Termination of Agency Essay
ALPHA COLLEGE OF TECHNOLOGY COLLABORATION WITH INTERNATIONAL UNIVERSITY COLLEGE OF TECHNOLOGY TWINTECH SUBJECT NAME: BUSINESS LAW SUBJECT CODE: LAW2013 TERMINATION OF AGENCY PREPARED BY: NAME: MOHAMAD AL-HAFIZ BIN SALLEHMATRIC NO. : 10071260 NAME: SITI RAHIMAH BINTI RAZMANMATRIC NO. : 10071260 NAME: NURUL ASHIKIN BINTI MD. YUSOFMATRIC NO. : 10071260 NAME: KHATIJAH BINTI AHMADMATRIC NO. : 10071260 NAME: LYANA NADIA BINTI SALAHUDINMATRIC NO. : 10071260 SEMESTER 4 2011/2012 ABSTRACT An agent’s authority can be terminated at any time.
If the trust between the agent and principal has broken down, it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice. An agency may come to an end in a variety of ways: (i) by the principal revoking the agency – However, principal cannot revoke an agency coupled with interest to the prejudice of such interest. Such Agency is coupled with interest. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e. g. where the goods are consigned by an upcountry constituent to a commission agent for sale, with poor to recoup himself from the sale proceeds, the advances made by him to the principal against the security of the goods; in such a case, theprincipal cannot revoke the agent’s authority till the goods areactually sold, nor is the agency terminated by death or insanity. The principal also cannot revoke the agent’s authority after it hasbeen partly exercised, so as to bind the principal, though he can always do so, before such authority has been so exercised.
Further, as if the agency is for a fixed period, the principal cannot terminate the agency before the time expired, except for sufficient cause. If he does, he is liable to compensate the agent for the loss caused to him thereby. The same rules apply where the agent, renounces an agency for a fixed period. Notice in this connection that want of skill continuous disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent.
Further, reasonable notice has to be given by one party to the other; otherwise, damage resulting from want of such notice, will have to be paid. The revocation or renunciation of an agency may be made expressly or impliedly by conduct. The termination does not take effect as regards the agent, till it becomes known to him and as regards third party, till the termination is known to them. When an agent’s authority is terminated, it operates as a termination of subagent also. ACKNOWELEDGMENT
Firstly we would thank the almighty GOD for giving us strength to complete the task which was assigned. We would also like to thank Business Law Subject for assigning us this project and giving us the opportunity to study about this topic which is considered to be the most important in the business law. We would also extend my gratitude to Mr. Afifi, Lecturer of Business Law for the help and support in the completion of our report. Lastly we would thank our parents and friends for all their support and help. TABLE OF CONTENT NO. | TITLE| PAGE| | ABSTRACT| i| 2| ACKNOWLEGDEMENT| ii| 3| INTRODUCTION| 1| 4| TERMINATION OF AGENCY| 2| 5 | CONCLUSION| | Introduction Agency is the relationship of a person (called the agent) who acts on behalf of another person, company, or government, known as the principal. “Agency” may arise when an employer (principal) and employee (agent), asks someone to make a delivery or names someone as an agent in a contract. The basic rule is that the principal becomes responsible for the acts of the agent, and the agent’s acts are like those of the.
Agency is a relationship that is pivotal to or relevant to so many business and commercial transactions. Under the law of agency, if a person is injured in a traffic accident with a delivery truck, the truck driver’s employer may be liable to the injured person even if the employer was not directly responsible for the accident. That is because the employer and the driver are in a relationship known as principal-agent, in which the driver, as the agent, is authorized to act on behalf of the employer, who is the principal.
The law of agency allows one person to employ another to do her or his work, sell her or his goods, and acquire property on her or his behalf as if the employer were present and acting in person. The principal may authorize the agent to perform a variety of tasks or may restrict the agent to specific functions, but regardless of the amount, or scope, of authority given to the agent, the agent represents the principal and is subject to the principal’s control. More important, the principal is liable for the consequences of acts that the agent has been directed to perform.
GHL Fridman describe agency as the relationship that exist between two persons when one called agent, is considered in law to represent the other, called the principal, in such way as to be able to affect principal’s legal position in respect of strangers to the relationship by making of contracts or disposition of property. As conclusion, agency is the fiduciary relationship “which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act. ” Termination of Agency Agency may be terminated in one of the following ways: . By agreement 2. By the principal revoking the agent’s authority 3. By the agent renunciation 4. By performance 5. By operation of law 6. By frustration Section 154 and 163 of the contract act 1950 deal with manner in which an agent’s authority may terminate. The said section provides as follows: 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 sound mind; or by the principal being adjudicated or declared a bankrupt or an insolvent.
Termination of agency, where agent has an interest in subject matter 155. Where the agent has himself an interest in the property which form the subject-matter of the agency, the agency cannot, in absence of an express contract be terminated to the prejudice of such interest. Illustration a. A give authority to B to sell A’s land, and to pay himself, out of proceeds, the debt due to him from A. A cannot revoke this authority, nor can it be terminated by his unsoundness of mind or death. When principal may revoke agent’s authority 156.
The principal may save as is otherwise provided by the last preceding section; revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal. Revocation where authority has been partly exercised 157. 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. Illustration a. A authorizes B to buy 1000 bales of cotton on account of A and pay for it out of A’s money remaining in B hands.
B buys 1000 bales of cotton in his own name, so as to make him personally liable for the price. A cannot revoke B’s authority so far as regards payment for the cotton. Compensation for revocation by principal or renunciation by agent 158. Where there is an express or implied contract that the agency should be continued for any period of time the principal must make compensation to the agent or the agent to the principle as the case may be, for any previous revocation of the agency without sufficient causes.
Notice revocation or renunciation 159. Reasonable notice must be given of such revocation or renunciation; otherwise the damage thereby resulting to the principal or agent, as the cases may be must be made good to the one by the other. Revocation and renunciation may be expressed or implied 160. Revocation and renunciation may be expressed or may be implied in the conduct of the principal or agent respectively. Illustration A empowers B to let A’s house. Afterward A let it himself. This is an implied of B’s authority.
When termination of agent’s authority takes effect as to agent, and as to third persons 161. The termination of the authority of an agent does not, so far as regard the agent, take effect before it become known to him or so far as regard third persons, before it become known to them. Illustration 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 against D, the executor. Agent’s duty on termination of agency by principal’s death or insanity 162.
When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late principal, all reasonable step for the protection and preservation of the interests entrusted to him. Termination of sub-agent’s authority 163. The termination of the authority of an agent causes the termination of the authorityof all sub agent appointed by him. Termination by Agreement The authority of an agent may be terminated by the act of the parties, by mutual agreement or mutual consent or revocation by the principal.
The agency may also be terminated by renunciation of the agency by the agent. When both parties desire and agree that the agency shall be terminated, the agency is terminated. Agency, being largely a consensual relationship, can be terminated by agreement. The agency relationship is a fiduciary one and so the courts are reluctant to keep parties together if the sub-stratum of the relationship has dissipated. In this method of termination, first both principal and the agent can agree that the agency is to come to an end.
Secondly, if the agency is evidenced by a contract, then any provisions regarding the termination of the agency by agreement should be observed by the party wishing to terminate the agency. Thirdly, any time frames should be concerning the length of notice should be kept. If there is none, then the terminating party should consider giving a reasonable length of notice to the other party. Section 63. By New Agreement The relation of principal and agent being founded on a mere contract, there is nothing sacred in this particular kind of contract that would prevent the parties from bringing the contract to an end, by making a new agreement.
They may, therefore, rescind the contract as a whole, or modify it as to certain terms. An agreement to dissolve a contract, to be valid, must have a consideration to support it. It has been held by the Georgia Court that where a written contract creates an agency to continue for one year, at a fixed compensation, and where the agency had been continued for successive years, there was a tacit renewal, from year to year, and the agency could not be revoked so as to deprive the agent of monthly compensation for an unexpired portion of a year.
Section 62. In Accordance with Original Agreement The contract of agency is governed by the general principals of contract law; there is no reason why it should be otherwise, hence if the terms of the contract in reference to the duration of the contract is agreed upon, this fixes the rights and obligations of the parties in this respect. If X is hired for one year to sell goods for another, the agency extends for one year and no longer. If X is hired to sell a horse, the authority terminates with the sale of the horse.
So, if the agent is to continue only until he has accomplished some certain work, the agency ends with the accomplishment of the work. Termination by Revocation The principal may revoke the authority of the agent at any time before it has been exercised to bind the principal. Generally, the principal can revoke the agent’s authority where; a. The principal gives notice of termination (a reasonable length of notice) to the agents b. The agent is in default under the agency However there are some qualifications to the principal’s right to revoke the agent’s authority for instance; a.
When agent has an authority coupled with an interest – for example in Smart v Sandars where the court held that a principal could not revoke the agent’s authority where the principal had consigned goods to the agent for the purpose of sale and the agent had loaned money to the principal on the security of the goods consigned for sales b. Where the agent has carried out the mandate conferred and assumed by the agent. Section 64. When Principal, May Terminate The principal, of right, cannot terminate a contract of agency through caprice, or where it is to his benefit to do so, unless the contract is merely at will.
Where it is for a stated term he has the power to terminate it any time, if the authority is not coupled with an interest, but he must respond in damages to the agent for doing so, where the contract is terminated through no default of the agent. The revocation by the principal may be either express or implied. The statute may sometimes dictate that the form of a revocation be in writing, or even under seal. An agency coupled with an interest cannot be revoked by the act of the principal. A sufficient nterest to constitute such an agency is usually predicated of agencies, where the interest of the agent is in the thing itself and not where it is in the proceeds or avails of the agency. If an agent has already executed his authority or begun to execute it before he is apprised of the revocation by the principal, the revocation would be without effect, as to what was already executed, and the agent will have the right to be indemnified as to any obligation which he has made by reason of the authority. With the termination of the agent’s power, any power delegated by the agent to a substitute, would likewise be at an end.
Under the rules of the common law, an authority given under seal can only be discharged in the same form it is given. This rule is not applied to powers of attorney, and although such powers of appointment are made under seal they may be terminated by parole, 11 unless the statute dictates another rule. Oftentimes the appointment is given in a much more formal way than the law requires, in such a case a revocation may be made in the way that the authority might have been given rather than in the way it was actually made.
The principal may revoke the authority of an agent, by disposing of the subject matter of the agency either by himself, or through another agent, as for instance, where several different agents are given the power to make a sale, of the principal’s land, a sale by one of them will thereby divest the others of their authority. An agent receiving his office by act of the legislature, his authority can only be taken away by the subsequent repeal of the act creating the office. Termination by renunciation
Agency may be terminated when the agent relinquished his or her authority and by doing so, ending the agent’s mandate. Renunciation is a unilateral act. Where the agency is for an indefinite duration, the agent can terminate the agency by giving reasonable notice of termination to the principal – section 159, Contract Act 1950. If reasonable notice is given, the agent will no longer be liable to the principal and he can claim reimbursement for all his services and expenses up to the date to the termination of his agency.
Where the agency is for a definite or fixed period of time, the agent cannot terminate the agency before the expiry of that period without just cause. Otherwise, he will be liable to the principal for damages for any loss caused by the premature termination of the agency – section 85, Contract Act 1950. However, the court will not order specific performance of the contract agency. Revocation or renunciation of the agency may be expressed or implied by the conduct of the principal or agent as those cases may be. The agent’s power to renounce the agency, is as full and ample as the power of the principal to revoke the agency. 4 The agent may have both the right, and power, to renounce, but having only the power to renounce, if he abandons the service which he has agreed to perform, he must answer to the principal for his default. The renunciation like the revocation, may be express or it may be implied from the acts of the agent. In all cases where an agent renounces his authority and the agency is of indefinite duration, the agent has the right to renounce, but it is his duty to give notice to his principal however, otherwise he may make himself liable to the principal in damages for resulting losses, and giving such notice he incurs no liability.
The agent usually has the right to elect to terminate the agency, in the case of an agency at will, but good faith requires that even in such an agency the agent is bound to give reasonable notice. The renunciation may also be justified where the principal is guilty of breach of contract, himself, or where he makes it impossible for the agent to continue in the agency. The illness of the agent where it is sufficient to incapacitate him, will justify him in terminating the agency. An agent may also renounce the agency, where he would be compelled to do an immoral or illegal act. Termination by performance
The contract of agency is brought to an end when the agent has performed the contract. This can happen when agency is created for a specific transaction and the transaction is completed – section 154, Contract Act 1950. Under Section 164 Contracts Act, 1950, agent must obey principal’s instructions. Here, Tom has to obey Paul’s instruction to sell two computers for not less than RM1500. He also does his job properly and exercises care and diligence – Section 165 Contracts Act, 1950. Under Section 167 Contracts Act, 1950, agent must communicate with principal with all reasonable diligence.
Agent must not allow his own interest conflict with his duty – Section 169 Contracts Act, 1950. Here, Tom has not communicated with Paul before buying one of the computers for himself. Therefore Paul does not consent it. There is a breach of duty. Termination upon expiry of the period fixed in the contract agency If an agency is created for fixed period, the agency is terminated at the expiry of that period whether or not the business or transaction has been completed. Termination by expiration of the specified period in which the agent has to act.
The courts say that the agency was for a “reasonable” time if no specific duration was stated in the agency agreement. The meaning of “reasonable time” is construed by the courts on a case-by-case basis, depending on the nature of the agency, the difficulty of accomplishment, and other controlling factors. Termination by Operation of Law An agency may be revoke by the operation of law in any following circumstances: a. Upon the death of the principal or the agent The death of either the agent or the principal terminates the agency – Blade v Free. Thus general rule, agency come to an end when the principal or agent dies.
An agency which is terminated by the death of the principal is effective only when the agent has notice the principal’s death – Section 161, Contract Act. An exception to this general rule is where the agent has an interest in the property which forms the subject matter of the agency. In such cases when the principal dies, the agent may continue to exercise authority; and if the agent dies, the authority passes to the agent’s personal representative. Section 162 of the Contract Act 1950 goes on to provide that when the principal dies the agent must take all reasonable steps to protect and preserve the interests entrusted to him. . When the principal or agent become insane The insanity of the agent or the principal also terminates the agency. Since an insane person is not capable to enter into valid contract to appoint an agent or act as one, the agency is terminated by such insanity. When the principal becomes insane the agent is bound to take all reasonable steps to protect and preserve his principal’s interests. c. When the principal or agent becomes insolvent or is made a bankrupt Upon insolvency, a person’s rights and liabilities are vested in the director general of Insolvency and therefore, the agency relationship ceases. Termination by Frustration
Upon the happening of an event which renders the agency unlawful, the agency may be terminated. An agency contract, like any other contract may discharged by frustration. For example, in Stevenson v Aktiengesellschaf Fur Cartonnagen Industrie where an outbreak of war made the principal an enemy alien, it was held that the agency was terminated. CONCLUSION The principle may revoke the real authority of his agent or the agent may terminate his authority by renunciation or revocation at any time. If the revoking party has previously agreed not to do so, the revocation remains valid, but the other party may maintain a contract action against him.
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. A major exception to the principal’s power of revocation occurs when the agent possesses “authority coupled with an interest. Here the agent who has part ownership in something that is to be disposed of also has power to dispose of his principal’s remaining interest in this thing. Such a power for the purpose of effectuating any security or of protecting or securing any interest of the agent cannot be revoked without the agent’s consent. Footnote description 1. Fridman’s Law of Agency (5th edition) 1983, page 5. 2. Smart v Sandars (1848) 5 CB 895 In Smart v Sandars (1848) 5 CB 895; 136 ER 152, an agent was given authority to sell goods on behalf of the principal and he made advances to the principal on the security of those goods.
However, it was held that in such a case the authority was revocable because at the time the agent was given authority he did not have an interest. The right to earn a commission will not be a sufficient “interest”, so that if the sole purpose of the agency is to allow the agent to earn commission, it will not be irrevocable (Frith v Frith  AC 254 (PC)). Where the authority is irrevocable at common law it will not be terminated by the death, insanity or bankruptcy of the principal. (G Masel, The Laws of Australia, Thomson Lawbook Online, [8. 1. 83]) 3.
Blades v Free (1829) 9 B;C 167 Blades v. Free (1829), 9 B. ; C. 167; here it was held that the executors of a deceased were not liable for necessaries supplied, after deceased’s death, to a wife (or mistress cohabiting as a reputed wife), even though the persons supplying such necessaries had received no notice of the death. 4. Gibbons v Wright (1954) 91 CLR 423, High Court of Australia Facts Gibbons and her two sisters-in-law became owners of land as joint tenants. Subsequently the sisters executed documents converting the joint tenancy into a tenancy in common.
After their death Gibbons claimed that these documents were ineffective because the sisters lacked mental capacity (if this was the case she would become sole owner). Held (Dixon CJ, Kitto and Taylor JJ) There is no ‘fixed standard of sanity’ – simply a requirement that each party be of ‘such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation. ’ The capacity required is relative to the transaction being effected – what is the capacity of the party to understand the nature of the transaction when explained? Here, it was necessary to show that the two sisters were capable of understanding, if the matter had been explained to them, that by the executing the mortgages … they would be altering the character of their interest in the properties … so that instead of the last survivor … becoming entitled to the whole, each of them would be entitled to a one-third share …’. This was not satisfied here. Their Honours then considered if the lack of capacity rendered the contract void or voidable; they concluded lack of capacity made a contract voidable only – so unless the sisters, in their lifetime, sought to avoid the contract it remained valid and enforceable. .  A. C. 239 Valli Mahomed Abu vs Berthold Reir on 27 March, 1919 Equivalent citations: (1919) 21 BOMLR 785 1. The only question to be decided on the cross-objection is whether the learned Judge in the lower Court was right in holding that the defendant was entitled in the account between the parties to a refund of any interest paid between the 10th of August 1914 and the 9th February 1915.
The former date is taken as the date of the outbreak of war between England and Austria and the latter is the date when the first license was granted to the plaintiff’s representative in Bombay to conclude their indent transactions. These transactions were so far as is indicated by the specimen indent put in indents sent from Bombay to Bradford for goods from the plaintiffs’ firm at that place. One of the plaintiffs, Reif, was a naturalized British subject.
The partnership of the plaintiffs being between an Austrian and a naturalized Englishman was dissolved by the outbreak of war but the plaintiff Reif was granted a license under the Proclamation of the 9th September 1914 in England. 2. Whether any of the contracts to which the accounts between the parties relate were illegal having regard to the terms of this Proclamation has not been established and the only question for consideration is, as above stated, whether the obligation to pay interest was between certain dates suspended. 3.
The learned Judge followed to a limited extent a previous judgment of Macleod J. , who thought the plaintiffs’ Bombay firm was a branch of their Hamburg firm, and held there was a suspension of the obligation to pay interest; he was of opinion that if the defendant had paid money due to the firm in Bombay he would not have been doing anything which involved a penalty but was entitled to withhold it until satisfied that it would be retained in safe custody till the suspension of hostilities. In so holding he applied certain American cases of which Brown v. Hiatta (1872) 15 Wall. 77, a decision of the Supreme Court of United States, is the weightiest. These decisions have however been questioned in Hugh Stevenson and Sons v. Aktiengesellschaft Fur Cartonnagen-Industries  A. C. 239, 245 by several of the Law Lords : see pp. 255, 259. 4. Moreover in the Supreme Court of the United States it has been held that where the debtor resides in the same country as the creditor or his duly authorised agent, provided such agent was appointed before the war. interest on a debt is not suspended by the war: see United States v. Grossmayer (1869) 9 Wall. 72 and Ward v.
Smith (1868) 7 Wall. 447, 452. In the present case the branch firm of the plaintiffs to whose representative the defendant paid interest was established long before the war. 5. We think the safest course is in the circumstances to give effect to the opinion indicated by the Lord Chancellor in Hugh Stevenson and Sons’ case that it is difficult to see on what principle interest (particularly whereas here it is stipulated for by the contract) is to be forfeited if private property is to be respected. 6. In the present case it may be that even according to the proposition laid down by Macleod J. he money paid was not wrongly paid and therefore could not be recovered back. 7. We allow the cross-objection and delete the clause of the decree which varies the Commissioner’s report. 8. The result is that the appeal is dismissed with costs an 1 the cross-objection is allowed with costs. CONCLUSION The principle may revoke the real authority of his agent or the agent may terminate his authority by renunciation or revocation at any time. If the revoking party has previously agreed not to do so, the revocation remains valid, but the other party may maintain a contract action against him.
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. A major exception to the principal’s power of revocation occurs when the agent possesses “authority coupled with an interest. Here the agent who has part ownership in something that is to be disposed of also has power to dispose of his principal’s remaining interest in this thing. Such a power for the purpose of effectuating any security or of protecting or securing any interest of the agent cannot be revoked without the agent’s consent. Bibliography Australian Case Law. (n. d. ). Retrieved March 01, 2012, from http://www. australiancontractlaw. com/cases. html Commercial Law. (n. d. ). Retrieved Febuary 28, 2012, from Termination of Agency: http://www. vanuatu. usp. ac. fj Hitomization. (2007, December 25).
Business Law Tutirial 11. Retrieved Febuary 29, 2012, from Business Law: http://hitomi5. blogspot. com Irrevocable Authorities. (n. d. ). Retrieved Febuary 29, 2012, from Athern Lawyers Commercial letigation: http://www. ahernslawyers. com. au/newsletter. asp? ID=8769 Pheng, l. M. , ; Ivan, J. D. (2009). Business Law. Selangor: Oxford University Press. ——————————————– [ 1 ]. Fridman’s Law of Agency (5th Edn) 1983, p 5. [ 2 ]. (1848) 5 CB 985 [ 3 ]. (1829) 9 B&C 167. [ 4 ]. See Gibbons v Wright (1954) 91 CLR 423, High Court Australia [ 5 ].  AC 239.