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BL/U3 Topic 4 Termination of Agency; Power of Attorney

Agency means a relationship between one person and another, where the first person brings the second mentioned person in a legal relationship with others. There are different modes of the creation of agency and termination of agency.

Termination of Agency

An agent is a person employed to do any act or enter into a contractual relationship with others (third parties) on behalf of his principal. An agent acts as a connecting link between his principal and third parties.

While representing his principal, an agent acts in the same capacity as of his principal. An agent is authorized by his principal to act on his behalf. An agent binds his principal legally in business transactions with third parties due to their agency relationship.

According to Section 201 of Indian Contract Act, 1872, Termination of agency takes place in the following circumstances:

  1. By revocation of authority by the principal.
  2. By renunciation of his authority by the agent.
  3. On the performance of the contract of agency.
  4. On the death of either principal or agent.
  5. By insanity of either principal or agent.
  6. With the expiration of time period fixed for the contract of agency.
  7. By an agreement made between principal and his agent.
  8. With the insolvency of principal or agent (in few cases).
  9. When the principal and his agent is an incorporated company, by its dissolution
  10. With the destruction of the subject matter. (section 56)

When an Agency is Irrevocable

When the agency cannot be terminated, it is known as an irrevocable agency. There are some situations when revocation of an agency by the principal is not possible, as follows:

  1. When the agency is coupled with interest then this is a case where an agent has interest in the subject matter of such agency. Where the agency is coupled with an interest, it does not come to an end even in the case of death or insanity or insolvency of the principal.
  2. When an agent has incurred personal liability, then the principal cannot revoke the agency, the agency becomes irrevocable. For Example – P appoints Q as his agent. Q purchases some wheat as per the instructions of P in his personal name. Now, in such a case P cannot revoke the agency.
  3. Where the agent has partly exercised the authority, and it is irrevocable with regard to liabilities which arises from the acts performed. (section 204) For Example – Mr. X appoints Mr. Y as his agent. On Mr. X’s direction, Mr. Y purchases 100kg cereals in the name of his principal ‘Mr. X’. Now, in such a case Mr. X cannot revoke the agency.

When Termination takes Effect

Termination of an agency takes its effect when it becomes known to an agent. When the principal revokes the agency, it comes into effect only when it is known to the agent. However, in the case of third parties, termination comes into effect only when such termination of agency comes to their knowledge.

According to Section 210 of Indian Contract Act, 1872 termination of an agent’s authority also terminates the sub-agents authority appointed by the agent. A per Section 209 of Indian Contract Act, 1872 it is the duty of an agent to protect his principal’s interest in case his principal becomes of unsound mind or dies.

It is the duty of an agent that on the termination of an agency due to death of the principal or his becoming insane, to take all the reasonable steps on behalf of his late principal or dying principal to protect the interest that the latter entrusts to him.

Power of Attorney

General Power of Attorney

A general power of attorney gives broad powers to a person or organization (known as an agent or attorney-in-fact) to act in your behalf. These powers include handling financial and business transactions, buying life insurance, settling claims, operating business interests, making gifts, and employing professional help. General power of attorney is an effective tool if you will be out of the country and need someone to handle certain matters, or when you are physically or mentally incapable of managing your affairs. A general power of attorney is often included in an estate plan to make sure someone can handle financial matters.

Special Power of Attorney

You can specify exactly what powers an agent may exercise by signing a special power of attorney. This is often used when one cannot handle certain affairs due to other commitments or health reasons. Selling property (personal and real), managing real estate, collecting debts, and handling business transactions are some of the common matters specified in a special power of attorney document.

Health Care Power of Attorney

A health care power of attorney grants your agent authority to make medical decisions for you if you are unconscious, mentally incompetent, or otherwise unable to make decisions on your own. While not the same thing as a living will, many states allow you to include your preference about being kept on life support. Some states will allow you to combine parts of the health care POA and living will into an advanced health care directive.

Durable Power of Attorney

Suppose you become mentally incompetent due to illness or accident while you have a power of attorney in effect. Will the document remain valid? To safeguard against any problems, you can sign a durable power of attorney. This is simply a general, special, or health care POA that has a durability provision to keep the current power of attorney in effect.

You might also sign a durable power of attorney to prepare for the possibility that you may become mentally incompetent due to illness or injury. Specify in the power of attorney that it cannot go into effect until a doctor certifies you as mentally incompetent. You may name a specific doctor who you wish to determine your competency, or require that two licensed physicians agree on your mental state.

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