Part 8- Agency Law, Chapter 35: The Agency Relationship, Doc 4

Grounds and Effects of Termination in Agency Law 1. Termination by Additional Grounds Beyond Restatement (Third):       Agent’s Loss of Capacity: This applies in cases where an agent loses a necessary license or other credential essential to perform their duties. While the principal is typically still bound to third-party contracts in certain cases, termination may occur when an agent becomes unable to perform core duties. Legal Changes: If the purpose of the agency becomes illegal (e.g., a ban on the sale of the agency's products), the agency automatically terminates. Bankruptcy: o Principal’s Bankruptcy: Generally terminates the agency if it would be reasonable for the agent to assume that the principal no longer desires the services. o Agent’s Bankruptcy: Could terminate the agency if it directly impacts the agent’s ability to fulfill obligations. Impossibility: When it becomes impossible for the agent to fulfill duties, such as through destruction of key property or significant legal changes. Severe Breach of Duty of Loyalty: If the agent breaches loyalty in a way that fundamentally disrupts the relationship, it may warrant immediate termination. War: If war makes it reasonable to assume that the principal no longer requires the agent's services, the agency may terminate. 2. Agency Powers Given as Security (Agency Coupled with an Interest):   Definition and Purpose: An agency coupled with an interest is created when the agent has a distinct interest in the subject matter beyond the principal’s interest, generally to secure an obligation owed by the principal. This setup benefits the agent (or a third party) and is not exercised for the principal’s primary benefit. Termination Rules: This type of agency is unique because it does not automatically end upon: o The principal’s or agent’s death o Loss of capacity by either party o Revocation by the principal o Completion of the principal’s obligation, unless the agency was specifically tied to that event. 3. Impact of Termination on Agent’s Authority:  Actual vs. Apparent Authority: o Actual Authority: Ends immediately upon termination of the agency, whether by mutual decision, completion of purpose, or operation of law. Apparent Authority: May persist post-termination if third parties are not informed of the change. This protects third parties who might reasonably believe the agent is still authorized to act on behalf of the principal. Notice Requirements: o Direct Notification (Actual): Necessary for third parties who have dealt with or are actively engaged with the agent; involves personal communication, written notice, or other direct methods. o Constructive Notification: Sufficient for those generally aware of the agency but without active transactions; may be achieved through public notices or announcements. o  4. Case Example: Gniadek v. Camp Sunshine:    Facts and Issue: A camp counselor, Newton, assaulted a former camper, Gniadek, after camp season had ended. Gniadek argued that Camp Sunshine was liable for Newton’s actions under apparent authority. Court’s Reasoning: The court ruled that Newton’s actual authority had ended with the camp season, and there was no basis for apparent authority. The camp was unaware of Newton’s actions, and there was no reasonable indication that Newton continued to represent the camp. Outcome: Camp Sunshine was not held liable as Newton’s apparent authority had ceased, and his actions were outside any reasonable scope of agency. In conclusion, agency termination can occur due to a variety of reasons, especially when circumstances or serious breaches disrupt the foundation of the agency relationship. Notifying third parties is crucial in preventing unauthorized actions by former agents, as it ensures that all involved parties are clear on the boundaries of the agent's authority.