Termination of the Agency Relationship

Question 1

What are the methods of termination?

Answer 1

Both the principal and the agent have the power to terminate the agency relationship at any time. However, that does not bar a cause of action for breach of contract.

Termination of an agency relationship occurs automatically upon:

1. the death of the principal; or
2. the disability or incapacity of the principal, so long as the agency relationship was not created by a durable power of attorney.

Question 2

What is required for termination of an agency relationship?

Answer 2

For termination to be effective, the principal must notify the agent of termination, unless:

1. the agency naturally expires upon completion of an action; or
2. the agency is set to expire at a particular time.

An agent’s authority continues to be effective as to acts performed in good faith until the agent receives actual knowledge of the termination.

Notification need not be express.

The agency will end if, by an objective standard of reasonableness, the agent should have understood his authority to be terminated by the principal’s actions.

To terminate the agent’s apparent authority, the principal must notify all third parties with whom the agent has dealt who might expect the agent to still be acting for the principal.

Question 3

What exceptions are there for the termination of an agency relationship?

Answer 3

An agency is not terminable at will of either party if:

1. the agency is coupled with an interest; or
2. the agent has a power given for security.

An agency coupled with an interest exists when the agent has an interest in the subject matte of the agency.

A power given for security exists when the agency was created for the purpose of the payment of a debt owed by the principal to the agent.