FIU doctrine of Respondeat superior Discussion

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Chapter 27: Agency Relationships in Business: 27-6b Termination by Operation of Law
Book Title: Business Law Today, Comprehensive Edition Text & Cases
Printed By: Teresa Halley (thall047@fiu.edu)
© 2020 Cengage Learning, Cengage Learning
27-6b Termination by Operation of Law
Termination of an agency by operation of law occurs in the circumstances discussed here.
Note that when an agency terminates by operation of law, there is no duty to notify third
persons.
1. Death or insanity. The general rule is that the death or mental incompetence of either
the principal or the agent automatically and immediately terminates an ordinary
agency relationship. Knowledge of the death is not required.
Example 27.28
Gary sends Tyron to China to purchase a rare painting. Before Tyron makes
the purchase, Gary dies. Tyron’s agent status is terminated at the moment of
Gary’s death, even though Tyron does not know that Gary has died.
(Some states have enacted statutes that change this common law rule to require an
agent’s knowledge of the principal’s death before termination.)
2. Impossibility. When the specific subject matter of an agency is destroyed or lost, the
agency terminates.
Example 27.29
Blake employs Pedro to sell Blake’s house, but before any sale takes place,
the house is destroyed by fire. In this situation, Pedro’s agency and authority
to sell Blake’s house terminate.
Similarly, when it is impossible for the agent to perform the agency lawfully because of
a change in the law, the agency terminates.
3. Changed circumstances. When an event occurs that has such an unusual effect on
the subject matter of the agency that the agent can reasonably infer that the principal
will not want the agency to continue, the agency terminates.
Example 27.30
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Robert hires Miles to sell a tract of land for $40,000. Subsequently, Miles
learns that there is oil under the land and that the land is worth $1 million. The
agency and Miles’s authority to sell the land for $40,000 are terminated.
4. Bankruptcy. If either the principal or the agent petitions for bankruptcy, the agency is
usually terminated. In certain circumstances, as when the agent’s financial status is
irrelevant to the purpose of the agency, the agency relationship may continue.
Insolvency (the inability to pay debts when they become due or when liabilities exceed
assets), as distinguished from bankruptcy, does not necessarily terminate the
relationship.
5. War. When the principal’s country and the agent’s country are at war with each other,
the agency is terminated. In this situation, the agency is automatically suspended or
terminated because there is no way to enforce the legal rights and obligations of the
parties.
Chapter 27: Agency Relationships in Business: 27-6b Termination by Operation of Law
Book Title: Business Law Today, Comprehensive Edition Text & Cases
Printed By: Teresa Halley (thall047@fiu.edu)
© 2020 Cengage Learning, Cengage Learning
© 2022 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means graphic, electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
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