Termination of Agency

Getahun Walelgn  LL.M, LL.M, LL.M, LL.
B
PhD Student Addis Ababa University School of Law
Lecturer Ethiopian Civil Service UniversitySchool of Law & Federalism
Adjunct LecturerAddis Ababa UniversitySchool of Law
Email: getahun.dagnaw@gmail.com
Termination of Agency
(Arts. 2226 -2233)
o A contractual obligation rarely exists forever. It comes to an end at a certain point

in time for different reasons. Agency is not different from this general principle. It
comes to an end for different reasons.
o One cause to extinguish agency relationship is termination. Performance of the
obligations assumed by each of the parties within the given time is the other
cause that brings obligations of agency to an end. Similarly, invalidation,
cancellation, or other grounds of extinction can bring obligations of agency
relationships to an end.
o 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.
o Most of these reasons are dealt with under the law of contracts in general. But
there is one cause special to agency relationship – termination.
Termination by the Acts of the Parties

o An agency relationship is said to be terminated by the act of the parties where
the agency agreement provides for the termination of the agency relationship.
Where the agency agreement does not provide for its termination it is
unilaterally terminable on notice.
o In contrast to an employment relationship, the assumption for an agency
relationship is that there is no requirement of a reasonable notice period.
o Thus, unless otherwise provided, or unless the circumstances indicated
otherwise, an agency relationship can be terminated by either party
immediately on notice.
Under Express Reservation

o A duly drafted agency agreement discusses, impliedly or expressly, when and
how the agency is to end. Meaning, the parties may in their agreement condition
or limit the occurrence of which will terminate the agency.
o The conditions or the limitations upon which the termination of an agency
relationship may consist of certain dates, achievement of the purpose of agency
or the occurrence of some particular event.
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Getahun Walelgn  LL.M, LL.M, LL.M, LL. B
o If such specification is included in the agreement, the agency relationship will
automatically terminate when the date lapses, the purpose of agency contract is
achieved, or when the specified event occur.
Lapse of Time
o In their agreement parties to an agency relationship may specify the time period
during which the agency relationship will exist. If such specification is made in a
contract, the agency relationship ends when the time expires.
 Example A authorizes B to represent him in a certain juridical act or
transactions for one year. The agency terminates upon the lapse of the
one year period.
Achievement of Purpose
o An agent may be authorized to perform a specific act or to accomplish a
particular objective.
 Example an agent only empowered to sell a particular immovable, his
power will terminate when the transaction is closed.
Happening or Cessation of stated event

o An agency can be created to terminate upon the happening or cessation of a
certain event.
o Upon the cessation or happening of the event the agency will terminate.
 Example A authorizes B to act on his behalf when A is away such as he
went abroad. When A returns the agency power will be terminated.
Mutual Agreement
o Contracts not only create obligations, they can also end an already existing one.
o Remember the definitional provision of contract under Article 1675 of the Civil
Code. As parties are at liberty to create an obligation, they are at liberty to end
the same. The extinction of the obligation of the parties through agreement is
known as termination. (Article 1819 of the Civil Code).
Revocation of Agency
o Revocation is the withdrawal of the power of the agent by the principal. The
principal may revoke the relationship in any ground and at his own discretion.
Under Ethiopian law no exception is placed on the power of the principal to
revoke agency.
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o One restriction on the principal is that she/he should make good the damage
caused to the agent if the revocation is made prior to the agreed date or under a
condition detrimental to the agent.
o Another limitation is that when the agent is appointed by several principals, the
action of revocation by one principal will not end the agency relationship. The
collective action of all is important.
o The effect of revocation made prior to the agreed date subjects the principal to a
suit for damages unless the date is fixed in the principal’s interest.
Renunciation by the Agent

o Renunciation by the agent means, resigning of an agent from the authority given
to him by the principal.
o To put it in other words, renunciation by an agent means the giving up of authority
by the agent.
o It gives power to the agent to unilaterally terminate his agency relationship with
the principal subject to only one condition. As indicated in article 2229(1) above,
the only condition provided for renunciation of an agency by the agent is the
giving of notice to the principal as to the renunciation.
o Having the power to renounce does not mean that the agent has right to
terminate the contract.
o If the renunciation is detrimental to the principal the agent shall indemnify the
principal but this also is subject limitation. If the agent cannot continue the
performance of the contract without suffering a considerable loss, the agent has
no obligation to make the damage caused to the principal as a result of the
renunciation.
Termination by the Operation of the Law

o The law has recognized certain events the occurrences of which automatically
terminate the agency relationship. These events automatically terminate the
events because their occurrence makes it impossible for the agent to perform the
act he is authorized to perform or makes improbable that the principal would
continue to want performance. The events include death or insanity, declaration
of absence, incapacity and bankruptcy of the agent or the principal.
Death or Incapacity of the Agent

o The general rule is death or incapacity of the agent automatically terminates the
ordinary agency relationship.
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o Is there any instance by which an agreement made between the agent and
principal for the continuation of the agency relationship after the death of an
agent becomes effective? In other words, does the term unless otherwise agreed
under article 2230 applies to the event of death of an agent or is it only applicable
to the other events?
 If you narrowly interpret Article 2230(1) on the bases of the reality of life,
you will definitely learn the inapplicability of the term “unless otherwise
agreed to the death of an agent”. Is there any possibility by which the
dead agent can act on behalf of the principal? No, hence agreement for
the continuation of agency relationship after the death of an agent can’t be
effective.
 If you interpret Article 2230 (1) in a broad manner, you may think of the
possibility of the continuation of agency relationship even after the death
of the agent. In their contract if the agent and the principal agree for the
continuation of agency relationship after the death of the agent, the
relationship may continue, for example, through the heirs of the agent.
So, your answer for the above question depends on your interpretation of
the above article.
o Is there any attempt made to protect the interest of the principal in cases where
the agency relationship terminates due to the death of an agent?
 Upon the death and incapacity of the agent, the law tries to protect the
interests of the principal imposing two responsibilities upon the heirs of the
deceased agent.
 First, heirs of the agent have the responsibility to inform the
principal about the death of the agent. This helps the principal to
appoint another agent or to personally act on the affair as soon as
possible.
 Second, the heirs have responsibility to take measures to protect
the interests of the principal until the latter appoints another agent
or until he takes over the affairs himself.
o There is one exception to the above general rule. The death, incapacity,
declaration of absence and adjudication of bankruptcy of the agent does not
terminate the agency relationship in cases of commission agency.
o The death of an agent does not always terminate agency relationship. As
indicated under article 2250 of the civil code above, agency relationship will not
be terminated even after the death of a commission agent if the heirs or
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representatives of the agent continue the activity of the agent. So, this is the only
exception to Article 2230(1).
Death of the Principal

o Death, incapacity, declaration of absent and adjudication of bankruptcy of a
principal automatically terminates an agency relationship if there in no contrary
agreement between parties.
o If the act for which the agent was authorized to perform relates to the act of
management and if the agent has already started managing at the death of the
principal, the agent may continue in its act of management until the legal
representatives or heirs of the principal take over his place.
The Principal or Agent Becomes Bankrupt

o The agency relationship is presumed to be terminated when either the agent or
the principal becomes bankrupt.
o The agent often looks to the principal for payment and thus would normally not be
expected to want to continue the relationship with a bankrupt principal. Agents
often end up holding money or property for the principal.
o When an agent becomes bankrupt the principal normally does not want the agent
to continue acting on behalf of the principal and potentially ending up with money
or property due to the principal.
Summary
o The agency relationship between the principal and the agent does not last
forever. The relationship will stop at some point either by the act of the parties or
by operation of law.
o Parties to agency contracts can terminate the relationship between them
unilaterally or mutually or by incorporating provision for the termination of the
relationship in the contract creating the relationship.
o The termination of agency by the agent is known as renunciation and the
termination by the principal is known as revocation.
o In the contract that creates the agency, parties may agree to terminate the
relationship on a certain date, upon the expiry of a certain period of time, upon
the happening or cessation of a certain event or upon the achievement of the
objective of agency.
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o The Ethiopian Civil Code also lists events upon whose occurrence the agency
relationship terminates. These events are death, incapacity, and declaration of
absence and adjudication of bankruptcy of either the principal or the agent.
o In cases when the agents are more than one, the death of one agent brings to an
end the authority of the surviving agent; unless there is contrary agreement
between the parties.
Chapter - Unauthorized Agent (Articles 2257 – 2265 Civil Code)

o If A, purporting to act as the agent of a principal (P), makes a contract with a third
party (TP) on behalf of P but without the authority of P, what are the legal
consequences for TP, and P, and A?
o That is the problem lying at the heart of the part dealing with unauthorized
agency. Needless to say, the answer depends on the facts and on the legal
system within which the questions are asked.
o It may matter whether P has put forward A as his agent, or whether he has
ratified A’s unauthorized conduct. It may be relevant whether A is himself liable
o Under the French rules regulating agency relationships, the essence of the
‘internal relationship’ is the power of representation that the agent has. In fact, the
French Civil Code defines the mandat or procuratio as a transaction by which a
person gives to another the authority to do something ‘for the principal and in his
name’.
o The main effect of this representation is that the principal alone will be bound by
any acts entered into by the agent within his authority, in the name and on behalf
of the principal.
o The French Civil Code therefore defines the internal relationship solely by
reference to the concept of representation. This is a restrictive approach, since
the principal will only be bound when he consents to the agent’s acting on his
behalf within the limits of the authority defined by the mandate. This is confirmed
by the fact that the Civil Code expressly stipulates that the agent cannot act
beyond the authority granted by the principal in the mandate. The text further
adds that the principal can only be bound to perform the undertakings contracted
by the agent in accordance with the authority granted.
o For undertakings contracted by the agent outside the authority granted by the
mandate, the principal will only be bound if he has ratified them expressly or
impliedly.
o From the above, it can be seen that French law sees the mechanism of
representation solely as a means of facilitating the legal life of the principal, since
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she/he cannot be bound unwillingly. In the light of the logic behind the
mechanisms of representation, this restrictive approach towards the agency
relationship makes sense.
o In fact, when the agent acts outside his authority or even in the absence of any
authority, the mechanisms of representation dictate that the principal is not bound
since, technically, the agent acts without his consent. The principal can only be
bound if he so chooses through ratification.
o The rules in the French Civil Code fail adequately to deal with all the facets of the
tri-partite nature of the agency relationship. More importantly, they fail to take into
consideration the interests of third parties who alone bear the risk of the agent
acting outside his authority or even acting without authority. Precisely because
the agency relationship is a triangular relationship, there is a need to balance the
interests of the principal with those of the third party.
o Under our law, there is a part dealing with the issues of an unauthorized agency.
o Unauthorized agency, occurs when a person who has no authority to do so
undertakes with full knowledge of the facts to manage another person’s affairs
without having been appointed an agent. This is clearly provided under Article
2257 of the Civil Code.
What do you think is the difference between agency proper and unauthorized agency?
o The basic difference between agency proper and unauthorized agency is that;
whereas in the former both the principal and the agent have consented to the
performance by the agent of an act on behalf of the principal, in the latter the
principal has not consented to such representation and the agent undertakes
spontaneously the management of the principal’s affairs with full knowledge of
the fact that he has no power to do so.
For unauthorized agency to exist the following conditions must be fulfilled:
In relation to the principal

o The principal must not have consented to the management of his affairs by the
acting person as in the sense of Article 2257 of the Civil Code. If he had given his
consent, then it would be the case of agency and not of unauthorized agency. It
should be remembered, however, the management of the principal’s affairs must
not have been undertaken against the principal’s will; in such cases the person
acting on the behalf of the principal would be committing a fault and would be
held liable extra contractually as in the sense of 2212 of the Civil Code.
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In relation to the acting person
o The acting person must have intended to manage the principal’s affairs; she/he
must have known that he had no authority to do so and yet undertaken, with full
knowledge of facts, to act on the behalf of the principal. Where the acting person
was under disability as to contracting, she/he is only liable to the extent of his
enrichment gained or the benefits from which the principal was deprived as is
clearly provided under Article 2262 of the code.
In relation to the act performed
o The first condition for this is in relation to the act performed is that juridical and
material acts undertaken by the acting person. As mentioned earlier, whereas a
contract of agency proper presupposes the performance by agent juridical acts
on behalf of the principal, unauthorized agency extended to cover both juridical
and material acts as can clearly inferred from the reading of the definitional
provision of 2257 of the code.
o It will thus apply in cases where, for example, a person has helped a motorist
having difficulties, or put out the fire, which broke out in his neighbor’s house
while the latter was away, or stopped a horse that had gotten out of hand. In all of
these cases, the person who has represented the principal will be indemnified for
all liabilities he undertook or compensated for damages he has suffered.
o The second condition in relation to the act performed is the management of the
affairs must have been undertaken in the principal’s interest as provided under
Article 2259 of the Civil Code.
o The provisions of unauthorized agency do not apply unless the management of
the principal’s affairs were undertaken in her/his own interest. It is immaterial
whether the acting person managed the other party’s affairs at the same time as
his own by reason of the fact that both affairs were closely connected together
that one of them could not be managed separately; if the person acted in the
principal’s interest, then provisions of unauthorized agency shall apply.
 Illustration: Assume the case where the acting person and the principal
whose affairs to be undertaken by the latter are neighbors. A fire has
started in the principal’s house and it is inevitable that the acting persons
property will be damaged too. The acting person has extinguished the fire
to avoid the loss to his house and property. In such case the provisions of
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unauthorized agency will not be applicable. This is because it is in the
interest of the acting person to prevent the fire and he has managed the
affairs at the same time as his own because both affairs were closely
connected together.
 This is another difference between agency proper and unauthorized
agency in that in the former the usefulness of the act is not in issue. Such
usefulness is determined at the time that the act was performed: it is
possible that, subsequent to the performance of the act, the principal
gains no benefit.
 While the owner of a house is out of town, a big storm sweeps away part
of the roof of the house. A neighbor undertakes to fix the roof to avoid
further damage to the property. A few days later, a fire breaks out in the
neighborhood and burns down the house. The principal, the owner in this
case, shall be held obliged to ratify because at the time his neighbor fixed
the roof he did so in the interest of the principal’s interest as in the sense
of Article 2264 (1) of the Civil Code.
Duties of the Parties

o In order to reap the remedies of the provisions of unauthorized agency, for both
the principal and the acting person, there are certain duties of the acting person
and the principal.
Duties of the acting person:
The following are duties of the acting person. The acting person has to discharge all
these in order to be able to reap the fruits of unauthorized agency.
o The acting person must, as soon as possible, inform the principal concerned in
the affairs that the he has undertaken the management of his affairs. This is
provided under Article 2260(1) of the code.
o The acting person must continue the management undertaken by him and bring it
to completion as long as the principal concerned in the affair is not in a position to
take it over himself (Article 2260(2)).
o In this respect, the duties of the acting person are stricter than those of a normal
agent who may, at any time, renounce the agency by giving notice to the principal
of his renunciation as in the reading of Article 2229 of the code that reads….The
requirement that the acting person completes the management undertaken by
him is included in order to ensure that the principal’s interest do not suffer;
moreover, it is reasonable to assume that an act will not be deemed to be in the
principal’s interest unless such act is completed.
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o The acting person must manage the affairs of the principal with the same care as
a bonus paterfamilias (Article 2261 (1)). Fault is determined in abstracto but quite
exceptionally and contrary to the rules of civil responsibility, the court may reduce
the damages which the unauthorized agent may be liable by taking into
consideration the circumstances that induced him to undertake the management
of the principal’s affairs (2260(2)).
o The acting person is subjected to the same rules as an agent as regards the duty
to render accounts as in the wording of Article 2260 of the code.
o The acting person must act towards the principal with strictest good faith as can
be seen from Article 2273 of the code.
Duties of the principal

o The principal is only bound by the acts performed by the unauthorized agent
where the management of his affairs was undertaken in his own interest. When
this is the case, the principal is held under obligation to ratify the acts done by the
person acting on his behalf but without authority as can be seen from the reading
of Article 2264 of the code. The natural consequence of ratification is that the
unauthorized person is deemed to have acted pursuant to an authority granted to
him the principal.
o The principal must indemnify the unauthorized agent for all liabilities he
personally undertook, reimburse him the expenses incurred in his interest to the
extent that such expenses were useful or necessary and compensate him for any
damage he suffered in connection with the management which was not due to his
own fault as in the sense of Article 2264 (2) of the code.
o The principal must perform the obligations arising out of the juridical acts
performed in his name by the unauthorized agent. Thus, if a child suffers an
accident and a passerby takes him to clinic, the father or guardian of the child is
not only responsible to the amount charged by the clinic but also to the different
fees incurred in connection to the same act.
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Termination of Agency

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Getahun Walelgn  LL.M, LL.M, LL.M, LL.

o A contractual obligation rarely exists forever. It comes to an end at a certain point

Termination by the Acts of the Parties

Under Express Reservation

Happening or Cessation of stated event

Renunciation by the Agent

Termination by the Operation of the Law

Death or Incapacity of the Agent

Death of the Principal

The Principal or Agent Becomes Bankrupt

Chapter - Unauthorized Agent (Articles 2257 – 2265 Civil Code)

For unauthorized agency to exist the following conditions must be fulfilled:

In relation to the principal

In relation to the acting person

In relation to the act performed

Duties of the Parties

Duties of the principal

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