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l How to recognizewhen an agencyrelationship isterminated byoperation of lawl How to recognizewhen an agencyrelationship isterminated by an actof the partiesl How to determinewhen individuals areentitled to actualnotice of an agencyterminationl How to determinewhen individuals areentitled to notice bypublication of anagency terminationYou need to know whenan agency relationshiphas been terminated soyou may determine yourliability as an agent or aprincipal. You also needto know your rights ofnotification when you area third party who hasdealt with the agent.l bankruptcyl actual noticel notice by publicationTermination of AgencyRelationshipsTerminating the RelationshipEven the most cordial and successful agency relationships musteventually end. Because many such relationships involve contractualarrangements, the usual rules that apply to the termination of contractsare applicable. As a result, agency relationships can be terminated eitherby operation of law or by the acts of the parties involved. Figure 19.1shows how liability is determined after the termination of a relationship.By Operation of LawWhen a significant change of circumstances alters the original reasonfor the agency relationship, a court may hold that agency relationshipterminated. These changes are sometimes said to terminate agencyagreements by operation of law.Death of the Principal or AgentThe death of an agent will terminate the agency relationship. Thismakes sense because an agency relationship is based on the personalservices of the agent. The death of the principal will also terminate theagency relationship.BankruptcyBankruptcy of the principal terminates an agency relationshipbecause it cancels all of the principal’s ordinary contracts. Bankruptcyalso gives a trustee title to the principal’s property for the benefit ofcreditors.Bankruptcy of the agent will terminate the agency relationship ifthe agent has used his or her own funds to conduct the principal’s business.If not, however, there is no reason to terminate the agency becausethe agent’s bankruptcy will not prevent him or her from doing the jobin the regular way.Impossibility of PerformanceAn agency relationship is terminated when the essential subjectmatter is destroyed or the incapacity of the agent makes performance impossible.Suppose you entered into an agreement to sell a friend’s boatto a third party. Before the contract was signed, the boat sank throughno fault of anyone involved. The agency would be terminated becausethe essential subject matter of the contract, the boat, has been destroyed.424 Unit 4: Being an Agent and Getting a Job