Commercial Law Lecture Seven - Termination of Agency PDF

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BIL0082 Commercial Law Termination of the Agency Learning Outcomes At the end of this topic you should be able to:   Be able to identify when an agency agreement will terminate. Understand the way in which the termination takes place. Essential Reading: Dobson and Stokes Commercial Law Chapter 33 ...

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BIL0082

Commercial Law Termination of the Agency

Learning Outcomes At the end of this topic you should be able to:

 

Be able to identify when an agency agreement will terminate. Understand the way in which the termination takes place.

Essential Reading: Dobson and Stokes Commercial Law Chapter 33

Introduction At some point in time the agency agreement will be terminated, save indefinite agencies. This can occur by the operation of law, the mutual consent of the parties, or where one party acts unilaterally. Once the agency agreement is terminated, it does not always follow that the party’s liabilities will end. In some cases the agent will have had his actual authority terminated, but he could still affect his principal’s liability with third parties. Therefore, a termination of an agency can create secondary obligations or indeed liabilities.

General Reading Sealy LS, Commercial Law: Text, Cases and Materials, chapter 6

Cases, Legislation and Journal Articles 1. The Termination of the Agency As most agency agreements are contractual, the principles are basically those you have already encountered when studying the law of contract and the CA regulations

(a) Reg 15: Minimum periods of notice for termination of agency contract Mi ni mum pe r i odso fno t i c ef ort e r mi nat i ono fag e nc yc o nt r ac t 15. —( 1 )Whe r ea na g e nc yc on t r a c ti sc on c l ud e df o ra ni n de fini t epe r i ode i t he rpa r t yma yt e r mi na t ei t b yno t i c e . ( 2)Th ep e r i odo fno t i c es ha l lb e — ( a )1mon t hf ort hefir s ty e a roft hec on t r a c t ; ( b)2mo nt hsf o rt hes e c on dy e a rc omme n c e d; ( c )3mon t hsf ort het h i r dy e a rc omme n c e da ndf o rt hes ub s e q ue nty e a r s ; a n dt h ep a r t i e sma yno ta gr e eona n ys ho r t e rp e r i odsofno t i c e .

(b) Reg 17: Entitlement of CA to indemnity or compensation on termination of contract Ent i t l e me ntofc omme r c i alag e ntt oi nde mni t yorc o mpe ns a t i o nont e r mi na t i onofa g e nc yc o nt r ac t 17. —( 1 )Thi sr e g ul a t i o nha se ffe c tf ort hep ur po s eofe ns ur i n gt h a tt hec omme r c i a la g e nti s ,a f t e r t e r mi n a t i onoft h ea g e nc yc ont r a c t , i nde mn i fie di na c c or da nc ewi t hpa r a gr a phs( 3)t o( 5)be l o wo r c o mpe n s a t e df ord a ma g ei na c c or da nc ewi t hp a r a gr a ph s( 6 )a nd( 7)be l o w. ( 2)Ex c e ptwhe r et h ea g e n c yc ont a c to t he r wi s epr o v i d e s ,t hec omme r c i a la g e nts h a l lbee nt i t l e dt ob e c o mpe n s a t e dr a t he rt ha ni nde mn i fie d. ( 3)Su b j e c tt opa r a gr a ph( 9)a ndt or e g ul a t i on1 8be l o w, t hec o mme r c i a la g e n ts ha l lbee nt i t l e dt oa n i nde mni t yi fa ndt ot h ee x t e ntt ha t — ( a )heha sbr ou gh tt hepr i nc i pa lne wc us t ome r sorha ss i gni fic a nt l yi n c r e a s e dt h ev ol u meo f b us i ne s swi t he xi s t i n gc u s t ome r sa ndt hep r i nc i pa lc on t i nu e st od e r i v es ub s t a nt i a lbe ne fit sf r om t hebu s i ne s swi t hs uc hc u s t ome r s ; a nd ( b)t hepa yme ntoft hi si nd e mni t yi se qu i t a bl eha vi n gr e g a r dt oa l lt hec i r c ums t a nc e sa nd ,i n p a r t i c u l a r ,t hec o mmi s s i onl o s tb yt hec o mme r c i a la g e ntont hebu s i ne s st r a ns a c t e dwi t hs uc h c u s t o me r s . ( 4)Th ea mou ntoft hei nd e mni t ys ha l ln ote x c e e dafigu r ee q ui v a l e ntt oa ni nd e mni t yf oron ey e a r c a l c u l a t e df r omt hec omme r c i a la g e nt ' sa v e r a g ea nnu a lr e mun e r a t i o no v e rt hepr e c e di n gfiv ey e a r sa n di f t hec on t r a c tg o e sba c kl e s st ha nfiv ey e a r st h ei n de mni t ys ha l lbec a l c u l a t e dont hea v e r a g ef ort hep e r i od i nq u e s t i o n. ( 5)Th egr a ntofa ni nd e mni t ya sme n t i on e da bo v es ha l lno tp r e v e ntt hec omme r c i a la g e ntf r om s e e ki n gda ma g e s . ( 6)Su b j e c tt opa r a gr a ph( 9)a ndt or e g ul a t i on1 8be l o w, t hec o mme r c i a la g e n ts ha l lbee nt i t l e dt o c o mpe n s a t i o nf ort heda ma g eh es u ffe r sa sar e s ul toft h et e r mi n a t i onofhi sr e l a t i o nswi t hh i spr i nc i pa l . ( 7)Fort hepur po s eo ft he s eRe g ul a t i onss uc hdamag es ha l lbede e me dt oo c c urp a r t i c u l a r l ywhe n t het e r mi na t i ont a k e spl a c ei ne i t he rorbo t hoft hef ol l o wi n gc i r c u ms t a nc e s ,na me l yc i r c ums t a nc e s whi c h — ( a )de pr i v et h ec o mme r c i a la g e ntoft hec o mmi s s i o nwhi c hpr op e rp e r f or ma nc eoft hea g e n c y c o nt r a c twoul dha v epr oc u r e df o rh i mwhi l s tp r o vi d i n ghi spr i nc i pa lwi t hs ub s t a nt i a lbe n e fit s l i nk e dt ot hea c t i vi t i e soft hec o mme r c i a la g e n t ;or ( b)ha v eno te na bl e dt h ec o mme r c i a la g e n tt oa mor t i z et hec o s t sa nde xp e ns e st h a th eh a d i nc u r r e di nt hepe r f or ma nc eoft hea g e n c yc o nt r a c to nt hea d vi c eofhi spr i nc i pa l . ( 8)En t i t l e me ntt ot hei nd e mni t yo rc o mpe n s a t i onf o rd a ma g ea spr o v i de df orund e rp a r a gr a phs( 2)t o ( 7 )a bo v es ha l la l s oa r i s ewhe r et h ea g e nc yc ont r a c ti st e r mi na t e da sar e s ul toft hede a t ho ft he c o mme r c i a la g e nt .

( 9)Th ec o mme r c i a lag e nts hal ll os ehi se nt i t l e me ntt ot hei nd e mni t yo rc o mpe n s a t i onf o rd a ma g e i nt hei ns t a nc e spr o vi de df ori npa r a gr a phs( 2)t o( 8)a bo v ei fwi t hi noney e arf ol l o wi n gt e r mi n a t i o nof h i sa g e n c yc o nt r a c th eh a sno tno t i fie dh i sp r i nc i pa lt ha thei nt e nd spu r s ui n gh i se n t i t l e me nt .

(c) Reg 18: Grounds for excluding payment of indemnity or compensation under R. 17 Gr o undsf ore x c l udi ngpa yme nto fi nde mni t yorc o mpe ns a t i o nunde rr e g ul a t i o n17 18. Th ec ompe ns a t i onr e f e r r e dt oi nr e g ul a t i o n17a b o v es hal lno tbep a y a b l et ot hec omme r c i a l a g e n twhe r e — ( a )t hep r i nc i pa lh a st e r mi n a t e dt hea g e n c yc o nt r a c tbe c a us eofde f a ul ta t t r i b ut a bl et ot he c o mme r c i a la g e ntwhi c hwo ul dj us t i f yi mme di a t et e r mi n a t i ono ft hea g e n c yc o nt r a c tpur s ua nt t or e g u l a t i on1 6a bo v e ;or ( b)t hec omme r c i a la g e ntha sh i ms e l ft e r mi n a t e dt h ea g e nc yc on t r a c t , unl e s ss uc ht e r mi na t i on i sj us t i fie d— ( i )b yc i r c u ms t a nc e sa t t r i bu t a bl et ot h ep r i nc i pa l ,or ( i i )ong r oun dsoft hea g e , i nfir mi t yo ri l l ne s soft h ec o mme r c i a la g e nti nc o ns e q ue nc e o fwhi c hhec a n no tr e a s ona b l yber e q ui r e dt oc on t i n uehi sa c t i vi t i e s ; or ( c )t hec o mme r c i a la g e nt , wi t ht hea gr e e me n tofhi spr i n c i p a l ,a s s i gn shi sr i g ht sa nddu t i e s u nde rt hea g e nc yc on t r a c tt oa n ot he rpe r s on. Pr oh i bi t i ono nde r o g a t i o nf r omr e g u l a t i on s1 7a nd 1 8 19. Th epa r t i e sma yno tde r o g a t ef r omr e g ul a t i on s1 7a nd1 8t ot hede t r i me nto ft hec omme r c i a l a g e n tb e f o r et hea g e n c yc o nt r a c te x pi r e s .

2. Termination by Agreement (a) Mutual agreement. This may be the result of a new agreement of accord and satisfaction, or it may be embodied in the contract. (For example, a clause in the agreement conferring the right on one or both parties to give notice to terminate the agreement. Such a clause may or may not provide for payment to the party who is given the notice [usually the agent]. However, the Commercial Agents Regulations may also be invoked in this respect).

(b) Unilateral act of principal or agent. 

Agency agreements can be terminated by P without notice. (Motion v Michaud (1892) 8 TLR 253, 447)



Termination may or may not give rise to an action by the other party for breach of contract and the court can imply time limits to end an agreement. (Danby v Coutt & Co (1885) LR 29 Ch D 500)



Where no time limit is stipulated then the courts can imply that the contract should end after a reasonable amount of time and reasonableness is to be judged against the facts of each case. Martin Baker Aircraft Co v Canadian Flight Equipment Ltd [1955] 2 All ER 722

Staffordshire Area Health Authority v South Staffordshire Waterworks Co [1978] 1 WLR 1387

(c) Performance of the agent’s task. If an agent is appointed to perform a particular task (eg to find a purchaser for a house or to sell a painting at an auction), then the agency will terminate when that object has been achieved. (Of course there may still be outstanding liabilities, such as payment of commission).

3. Termination of the Principal’s Business This can take different forms. E.g. selling the business, voluntary/forced insolvency. Clearly if a person is unable to act on his own behalf he would be unable at law to take such action through an agent. Rhodes v Forwood (1875-76) LR 1 App Cas 256 Turner v Goldsmith [1891] 1 QB 544

4. Termination of the Agents business Like the termination of P’s business this can also take various forms. Retirement, illness, sale of the business, voluntary/forced insolvency. Note that insolvency will not always automatically revoke an agent’s authority. The important status is that of the principal. However, the financial status of the agent will often be seen as crucial to the ability of the agent to discharge his agency duties, so the bankruptcy of the agent will frequently terminate his authority.

5. Death of the Principal or Agent This is rather obvious. One may also observe that the same may be said of the winding up of a company or the dissolution of a partnership. Campanari v Woodburn (1854) 15 CB 400

Pool v Pool (1889) 58 LJP 67

6. Insanity of the Principal or Agent We have already seen an example in Yonge v Toynbee [1910] 1 KB 215. However, it must be observed that an agent specifically appointed to act on behalf of a principal because of his insanity (or lack of mental capacity) would not be deprived of this authority in this way.

Drew v Nunn (1878-79) 4 QBD 661

(7) Personal Liability of the Agent P is prevented from terminating an agency where A has incurred personal liability whilst acting under instructions from P. Read v Anderson (1884) 13 QBD 779

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