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Duration and Termination of Agency

The relation of principal and agent can only 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”[i].

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[ii].  If, after the expiration of the time so stipulated in the contract, the parties continue their relationship as principal and agent, a rebuttable presumption is raised that their relations are governed by the original contract and that the contract is renewed for a similar period.  For instance, if the parties entered into a contract for one year and continued to act under the contractual terms after one year, the court will presume that the parties in fact intended to keep the contract alive for another year [iii].

On the other hand, if the parties did not fix any appropriate time for the termination of contract, the contract is deemed to be terminated after a reasonable time.  “What constitutes a reasonable time during which the authority continues is determined by the nature of the act specifically authorized, the formality of the authorization, the likelihood of changes in the purposes of the principal, and other factors”[iv].  Moreover, the burden of proving the termination or revocation of an agency rests on the party asserting it.

“Parol evidence cannot be admitted to add another term to an agreement even if the writing contains nothing relating to the particular provision to which the parol evidence is directed”[v].  Thus, courts will not admit parol evidence while determining the duration of an agency contract where the written contract is viewed as integrated, or unambiguous, or both.  An agency continuing for a reasonable time can be terminated by one party only after giving sufficient notice to the other party.

An agency created for a specific purpose as well as an agency created by a power of attorney is terminated once the particular purpose for which it was created was accomplished[vi].  After the termination of the agency, the agent is free of any fiduciary duty to the principal arising from the agency relationship.  According to the Uniform Durable Power of Attorney Act § 5, an affidavit executed by the attorney in fact under a power of attorney, stating that he/ she did not have at the time of exercise of the power actual knowledge of the termination of the power by revocation or of the principal’s death, disability, or incapacity is conclusive proof of the nonrevocation of the power at that time.

The parties can terminate the agency by mutual agreement.  An agency relationship requires the mutual assent of the parties and both the parties have power to withdraw their assent.  An agency may not be terminated by the act of one of the parties and should be done mutually.  The mutual abandonment of an agency is a question of fact, since it is a matter of intention of both the parties.  The court will ascertain such intent from the surrounding facts and circumstances of the transaction as well as implied from the conduct of the parties[vii].

An agency contract may be cancelled on the basis of an express stipulation in the contract.  In such a case, the parties will have a right of cancellation at the will of either party or upon the happening of a contingency or the nonperformance of some expressed condition.  The principal cannot cancel such an agreement at will so long as the agent fulfills his/her part of the agreement.  However, the principal can cancel the agency contract for any justifiable cause.

An agency may be revoked at the will of the principal when an agency is not coupled with an interest, and no third party’s rights are involved.  The party terminating the agency must show good cause.  Thus, when A enters into a contract whereby B is to provide A for a stated period of time with goods or services, which both parties realize are for use in a particular enterprise owned by A, in the absence of a specific clause so providing, A cannot escape his obligations under that contract by voluntarily selling his interest in the enterprise before the expiration of the expressed contract term[viii]. Therefore, if the right to cancel an agency contract is dependent upon some contingency, the cancellation must be justified by establishing the happening of  such contingency[ix].

An agency cannot be terminated at will during certain specific instances.  For example, in the matter of distributorship or sales agency contracts of indefinite duration, an at-will termination is not feasible.  In such a case, the distributor might have made substantial investment in establishing or furthering the distributorship.  Hence, the agreement may be terminated only after a reasonable time has lapsed and reasonable notice of termination is given[x].

An agency contract to be 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.

A principal may unilaterally cancel an agency without incurring liability for breach of contract under the following instances: misconduct or habitual intoxication of the agent which interferes with his/her employment, the refusal of the agent to obey reasonable instructions or to permit the principal to make a proper audit of his/her accounts, serious neglect or breach of duty by the agent, dishonesty or untrustworthiness of the agent, the agent’s failure to pay an indebtedness owing to the principal, disloyalty of the agent like using the agency to make secret profits.

Ordinarily, an agent may renounce the agency relationship by expressly notifying the principal, either orally or in writing.  An agent’s cessation of all relations with the principal, and abandonment by the agent may be treated as a renunciation.  However, mere violation of instructions by the agent will not amount to renunciation.

Although agency can be terminated at will, law stipulates that notice must be given to the party affected by termination.  However, express notice to the agent that the agency has been revoked, or to the principal that the agency is renounced, is not always necessary if the affected party actually knows, or has reason to know the facts resulting in such revocation or renunciation[xi].  The principal shall provide sufficient notice to third parties as to the revocation of agent’s authority.  Otherwise, the acts of an agent after his/ her authority has been revoked may bind a principal as against third persons who rely upon the agency’s continued existence.  This may often happen to transactions initiated by the agent before the revocation of authority, and the rule is applied in favor of persons who have continued to deal with insurance agents, purchasing agents, and the like[xii].

There is no need to provide any formal written notice to third persons of the ending of an agency relationship.  Actual notice of termination is sufficient in the case of third parties and such notice may be shown by a written or oral communication from the principal or the agent, or it may be inferred from the circumstances.  For instance, a third party is deemed to have actual notice if he/she has knowledge of the fact that the principal has appointed another agent for the same purpose.

The character of the notice also differs with respect to third parties.  Thus, actual notice must be brought home to former customers who have dealt with the agency more directly, while notice by publication will be sufficient as to other persons.

In addition, an agency may be terminated by operation of law.  The death of the principal operates as an immediate and absolute revocation of the agent’s authority, unless the agency is one coupled with an interest.  The rule is the same even if the agency is created with more than one principal.  Where the power or authority is created by two or more principals jointly and one of them dies, the agency will be terminated unless it is coupled with an interest.  However, an agency may be made irrevocable by statute, notwithstanding the death of the principal.

Regarding the termination of agency upon the death of the principal, two views are prevailing.  According to one view, unless the agency is one coupled with an interest, it will terminate on the death of the principal, notwithstanding the fact that the agent and third person are ignorant of the fact.  Another view is that if the third person dealing with the agent acts in good faith and in ignorance of the principal’s death, the revocation of the agency on the death of the principal takes effect only from the time that the agent receives notice of such death.  In such a case, “the principal’s estate may be bound where the act to be done is not required to be done in the name of the principal.”

Similarly, death of the agent will revoke an agency not coupled with an interest and this is the rule when there are two or more agents.  However, in the case where a sub agent is appointed by the agent, the authority of a subagent is terminated by the death of the agent, unless the agent appointed the subagent at the principal’s request.  In that event, the subagent derives his/her authority form the principal and not from the agent.

The loss of capacity of a party resulting from temporary or permanent mental incompetency may result in the termination or suspension of the agency relationship.

Thus, the termination of the agent’s authority due to the loss of capacity of the principal may not affect the rights of third persons if such third persons do not have notice of such fact.  Also, if the agent’s authority is coupled with an interest, it is not suspended by the principal’s insanity.

Similarly, bankruptcy of the principal is a valid reason for the termination of agency and the agent is divested of any authority to deal with any assets or rights of property of which the principal was divested by reason of the bankruptcy, irrespective of whether the agent receives notice of the bankruptcy.  A power of attorney may be terminated by the bankruptcy of the principal.  The mere insolvency of the principal will not automatically terminate agent’s authority.  The determinant fact is whether the law has assumed control over the principal’s property.  Likewise, the bankruptcy or insolvency of an agent terminates his or her authority to conduct transactions on behalf of the principal.

A change in value of the subject matter or a change in business conditions may terminate or suspend the agent’s authority if the agent should reasonably infer that the principal would not consent if aware of such facts.  Similarly, a change in legal identity of, or merger by, the principal is a valid ground for termination of an agency contract.

The loss or destruction of the subject matter of the agency or the termination of the principal’s interest is yet another ground for terminating the agent’s authority.  The agent’s authority ceases when the agent has notice of the fact.  However, destruction of subject matter will not always result in termination of agency, especially when the subject matter can be replaced without substantial detriment to either party.

In addition, a change of law making the required act illegal may terminate an agency contract. If the authority or power of an agent is coupled with an interest, it is not revocable by the act, condition, death, or mental incapacity of the principal before the expiration of the interest, unless there is some agreement to the contrary.  A power is coupled with an interest where the agent receives title to all or a part of the subject matter of the agency.  In order to support a claim of power coupled with an interest, either legal title or equitable title is sufficient.  A power coupled with an interest will survive to the personal representative of the agent upon the agent’s death[xiii].

[i] Merchant v. Foreman, 182 Kan. 550, 555 (Kan. 1958)

[ii] Tabor v. Mason Dixon Lines, Inc., 196 Tenn. 198 (Tenn. 1953)

[iii] Cinefot International Corp. v. Hudson Photographic Industries, 13 N.Y.2d 249, 252 (N.Y. 1963)

[iv] Beaucar v. Bristol Federal Sav. & Loan Asso., 6 Conn. Cir. Ct. 148, 159 (Conn. Cir. Ct. 1969)

[v] Hotchkiss v. Nelson R. Thomas Agency, Inc., 96 Cal. App. 2d 154, 158 (Cal. App. 1950)

[vi] Renchie v. John Hancock Mut. Life Ins. Co., 174 S.W.2d 87 (Tex. Civ. App. 1943)

[vii] Preszler v. Dudley, 153 Cal. App. 2d 120, 124 (Cal. App. 2d Dist. 1957)

[viii] Wilson Sullivan Co. v. International Paper Makers Realty Corp., 307 N.Y. 20, 26 (N.Y. 1954)

[ix] Carleno Coal Sales, Inc. v. Ramsay Coal Co., 129 Colo. 393, 398 (Colo. 1954)

[x] Bronken’s Good Time Co. v. J.W. Brown & Assocs., 203 Mont. 427 (Mont. 1983)

[xi] Van Houten v. Trust Co. of Chicago, 413 Ill. 310 (Ill. 1952)

[xii] Morton Marks & Sons, Inc. v. Hill-Chase Steel Co., 196 Va. 268 (Va. 1954)

[xiii] Phoenix Title & Trust Co. v. Grimes, 101 Ariz. 182 (Ariz. 1966)

Inside Duration and Termination of Agency