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Agency • Termination of Principal-Agent Relationship
AG#023
Legal Definition
There are two kinds of agency relationships that cannot be unilaterally terminated by the principal: (1) an agency coupled with an interest, or (2) a power given as a security.
Plain English Explanation
There are two kinds of agency relationships that cannot be terminated, unilaterally, by the person who created the relationship.
The first kind is called an "agency coupled with an interest," which means an agency relationship exists due to some legal, contractual agreement. For example, imagine if Bob owed Sam $1,000 as a debt but had no cash. Bob does own a fancy, vintage guitar likely worth a lot more than $1,000. Thus, to settle his debt with Sam, Bob gives Sam a written Power of Attorney that authorizes Sam to sell the guitar and give back any money beyond the $1,000 owed. Sam agrees. At this point, Sam is now an agent of Bob, acting on behalf of Bob, to sell Bob's guitar. However, there is a binding agreement between Bob and Sam that creates an interest. This interest means that Bob is no longer free to terminate the relationship with Sam because Sam has the right to try to sell the guitar in order to settle the debt.
The second kind is called a "power given as a security." This is common in agreements that involve collateral. Imagine if Bob borrows $100 from Sam and gives Sam his fancy guitar to hold as collateral with authority to sell the guitar if Bob fails to pay back the $100. This authority cannot be terminated. If it could, it would be pretty unfair to Sam who just wants to recoup their $100.
The first kind is called an "agency coupled with an interest," which means an agency relationship exists due to some legal, contractual agreement. For example, imagine if Bob owed Sam $1,000 as a debt but had no cash. Bob does own a fancy, vintage guitar likely worth a lot more than $1,000. Thus, to settle his debt with Sam, Bob gives Sam a written Power of Attorney that authorizes Sam to sell the guitar and give back any money beyond the $1,000 owed. Sam agrees. At this point, Sam is now an agent of Bob, acting on behalf of Bob, to sell Bob's guitar. However, there is a binding agreement between Bob and Sam that creates an interest. This interest means that Bob is no longer free to terminate the relationship with Sam because Sam has the right to try to sell the guitar in order to settle the debt.
The second kind is called a "power given as a security." This is common in agreements that involve collateral. Imagine if Bob borrows $100 from Sam and gives Sam his fancy guitar to hold as collateral with authority to sell the guitar if Bob fails to pay back the $100. This authority cannot be terminated. If it could, it would be pretty unfair to Sam who just wants to recoup their $100.
