(1) Termination of authority is not effective in relation to the third party unless the third party knew or ought to have known of it.
(2) Notwithstanding the termination of its authority, an agent remains authorised to perform the acts that are necessary to prevent harm to the principal's interests.
1. Grounds for termination not covered by this Article
There are several grounds on which the agent’s authority may be terminated: revocation by the principal, renunciation by the agent, completion of the act(s) for which authority had been granted, loss of capacity, bankruptcy, death or cessation of the existence of the principal or the agent, etc. What exactly constitutes a ground for termination and the way it operates as between the principal and the agent falls outside the scope of this Article and is to be determined in accordance with the applicable laws (e.g. the law governing the internal relations between principal and agent, the law governing their legal status or personality, the law governing bankruptcy, etc.) which may vary considerably from one country to another.
2. Termination effective vis-à-vis third party
Whatever the grounds for termination of the agent’s authority, in relation to the third party termination is not effective unless the third party knew or ought to have known of it (paragraph (1)). In other words, even if the agent’s authority has been terminated for one reason or another, the agent’s acts continue to affect the legal relationship between the principal and the third party as long as the third party is neither aware of nor ought to know that the agent no longer has authority.
Obviously the situation is clear whenever either the principal or the agent gives the third party notice of the termination. In the absence of such notice it will depend on the circumstances of the case whether the third party ought to have known of the termination.
1. Principal B opens a branch office in city X. An advertisement published in the local newspaper indicates Managing Director A as having full authority to act on behalf of B. When B subsequently revokes A’s authority, a similar notice thereof in the same newspaper is sufficient to make the termination effective vis-à-vis B’s customers in city X.
2. Retailer C has repeatedly placed orders with sales representative A for the purchase of goods sold by principal B. A continues to accept orders from C even after its authority has been terminated on account of B’s bankruptcy. The mere fact that the bankruptcy proceedings were given the publicity required by the applicable law is not sufficient to make the termination effective vis-à-vis C.
3. Authority of necessity
Even after termination of the agent’s authority the circumstances of the case may make it necessary for the agent to perform additional acts in order to prevent the principal’s interests from being harmed.
3. Agent A has authority to purchase a certain quantity of perishable goods on behalf of principal B. After the purchase of the goods A is informed of B’s death. Notwithstanding the termination of its authority, A continues to be authorised either to resell the goods or to store them in a suitable warehouse.
4. Restriction of authority also covered
The rules of this Article apply not only to termination but, with appropriate modifications, also to subsequent restrictions of an agent’s authority.