TOPIC 5

LAW OF AGENCY

Law of Agency

Meaning of laws of agency

Parties to a contract of agency
Types of agents
Methods through which agency can be created
Right and duties of parties to an agency contract
Ways through which agency may be discharged

AGENCY

Introduction

✓ Law of agency is one of branches of law of contract. A person is employed by another

to act on his behalf thus creating a Contract of Agency

Parties in agency contract

✓ The parties to contract of agency are the Principal and the Agent. The principal is the
person for whom the act is done on his behalf.
✓ The agent is the person employed by to do an act or to represent the other in dealings
with third party.

Contract of agency

✓ Contract of agency is contract between the principal and the agent. The agent is
authorized to establish privity of contract between the principal and the third party.
✓ The agent should bring about the contractual relations between the principal and the
third party. He is a connecting link after he connects them, he drops out.
Classes of Agents

Agent can be classified as follows;

❖ To the extent of their authority_

These are;

1. A general agent- is who is employed to do all acts with a particular business or

employed e.g. firm manager. He can bind by doing anything which falls within the
ordinary scope of business whether authorized or not provided the third party acts
bonafide Third parties may assume that each agent has power to do all that which is
usual for a general to do in the business.
2. Special agent -Is one who is employed to do some particular transactions e.g.to sell a
motor vehicle. As soon as the act is performed the authority of such an agency comes
to an end. If he does anything outside his authority the principal is not bound. The third
party entitled to assume that the agent has unlimited powers. The third party should
make inquiries the extent of authority of the agent before entering into contract.
3. Universal agent- Is one who is found to be one whose authority is unlimited. He is
authorized to do all acts which the principal can lawfully. He enjoys extensive power
to transact every kind of business on behalf of his principal. This type of agency is very
rare.

❖ According to the nature of work performed by them_

These are;

Brokers; he is a person who represents buyer and a seller in negotiating the purchase or sale
without physically handling the goods involved. He is only concerned in bargaining for the
price and bringing the parties together. He receives a commission or brokerage fees for his
services. Each broker specializes on particular kinds of goods.

Factors; is a person who sells goods in his possession and under his control on behalf of his
principal. Factor posses the goods he sells in his own name receive payment and gives valid
receipts. He may give credit to reasonable extent and pledge goods Has a general lien on goods
in his possession for all charges and expenses incurred by him
Commission agent; Is a person who is employed to buy or sell goods for the principal at the
best possible price He gets commission as his remuneration. They are usually employed by
foreign merchants. The main business is to receive order from foreign buyer to buy local from
manufacturers and traders. They act in their own name but for account of their foreign principal
The agent undertakes the work connected with department of goods such as booking, space in
ships preparation of bill of lading.

Del credere agent; an agent that guarantees to its principal the payment for the price of goods
or services sold under English law.

Forwarding agent; Are those persons who acts as agent of either exporters or importers. They
are employed to collect and deliver goods on behalf of others. When they act as an agent of
exporters they collect, the goods and attend to the packing and marking and dispatch of the
goods to the property destination. They act as agents of importers they undertake delivery of
goods at the port of importation. Take delivery of the goods examine the quantity and quality
and to their property warehousing or transportation to the place of business. They possess
specialized knowledge of customs and other formalities connected with import and export of
goods. They relieve the importers and exporters by relieving them of the difficult task of
colleting and forwarding goods.

Auctioneers; is an agent employed usually to sell goods at a public auction. He has simplified
authority to sell the highest bidder he has lien on goods in possession for his changes.

Non mercantile agent; these are profession such as doctors advocate attorneys’ insurance
agent.

CREATION OF AGENCY

Agency may be created in any of following ways;

1. Express agreement

Agency can be created by express agreement. It will specify the scope of the authority of agent.
The agent is appointed by word of mouth or in writing e, g, to execute a deed of sale of land
may be appointed by executor of a formal power of attorney a stamped paper.

2. Implied agreement
This arises when there is no express agreement of appointing the agent, but instead the
existence of the agent is inferred

according to the circumstances of the case or by conduct of parties on a particular occasion of

from the particular relationship between parties. The agency may take the following forms;

1) Agency by estoppels

It is based on Doctrine of estoppels, this doctrine states that, “where a person by his words or
conduct leads the other to believe that he acting as an agency, and the other person acts on that
believe he is prevented to deny the truth of such a statement although it did not exist' This
means that if an agency acts without authority or incurred a liability to a third party the principal
is bound by such acts.

2) Agency by holding out

This is based on the Doctrine of holding out. In these cases, the principal is bound by all acts
of the agency if he has induced other

persons to believe that they are within his authority. This agency requires some affirmation or
positive conduct by the principal.

3) Agency by necessity

The law confers some authority on one person to act for another without any regard to the
consent of the principal This occurs in case of emergency in which the property or interest of
another are in imminent danger .It becomes necessary in order to preserve property or interest
to act before the instruction of the owner can be obtained. The following conditions must be
met before an agent acts as an agent of necessity;

a) There should be a real necessity for acting on behalf o the principal

b) It should impossible to communicate with the principal within time available.
c) The alleged agent should act bonafide in the interest of the principal.

Circumstances under which agency of necessity may arise;

✓ Where agents exceed his authority, bonafide in an emergency e g A consigns fruits to

13 at Nairobi to send them to London. B finds the fruits are perishing rapidly and sell
them at Nairobi at best possible price.
 ✓ Where the carrier of goods acting as a bailee does anything to protect or preserve the
goods in an emergency although there is express authority in that regard .e.g. a carrier
of goods may sell goods incase of accident to raise money for repairs.
✓ Where a husband improperly leaves his wife without providing proper means of for her
survival. The wife an agent of necessity when a husband deserts her and forced to live
separately. She has authority to pledge her credit necessaries even against the wish of
her husband. This rule does not apply to wife who voluntarily desserts her husband.
4) Agency by ratification

Ratification means subsequent adoption of and acceptance of an act originally done without
authority. The principal affirms or adopts the unauthorized act and agency by ratification exists.
The principal becomes bound as if the act was originally authorized, thus it relates back to the
original contract. Ratification may be expressed or implied.

Essentials of a valid Ratification

i. The agent must purport to act as an agent for a principal who is in contemplation. This
means this the agent must be expressly contract as an agent for the principal in his
knowledge of third parties, The principal must be named or identifiable, It is sufficient to
indicate that he is acting as an agent, undisclosed principal cannot step in ratification for an
act done by a third party.
ii. There should an act capable of ratification; the act ratified must be lawful a share holder
cannot ratify an act of a director which is ultra vires.
iii. The principal must be in existence. For a valid ratification the principal must be in existence
at the time of making the original contract because rights and liabilities cannot be attached
to a non exiting person.
iv. The principal must be competent to contract; the principal must have contractual capacity
b both at the time of making of contract and time of ratification.
v. The principal must have full knowledge of material facts. No valid ratification may be made
by person who does not possess full knowledge.
vi. Whole transaction must be ratified. Ratification must be of the whole contract. One part
means the whole contract is ratified. The principal cannot reject and accept some parts.
vii. Must be done within a reasonable time. Ratification is valid if made within a reasonable
time after the original contract. If time is fixed must be done within that time. If no time is
 fixed reasonable time should be allowed and this depends on the circumstances of each
case.
viii. Ratification must not injure a third part

EXTENT OF AG EFTS AUTHORITY

The agent s authority means the capacity to bind the principal to third parties. The agent can
bind th principal only if he acts within the scope of his authority. The scope of agents of
authority is determined by;

1. Actual authority; An agent can do all acts assigned to him either expressly or
irnpliedly and this binds the principal to third parties. The authority may be expressed when
spoken or written implied authority means Lt is inferred by the conduct or circumstances of
the case the ordinary course of business.

2. Ostensible or apparent authority; This means an authority which the third party
dealing with agent can presume he has the authority in relation to a particular business. It is
doing an act usually necessary in the course of business in accordance with customs or trade
usually of that particular business or market.

3. Authority in emergency in emergency; An agent has authority to in emergency to do

such acts for the purpose of protecting of the principal from loss as would be done by a person
in of ordinary prudence in his own case under similar circumstances.

DUTIES AND RIGHTS OF AN AGENT

DUTIES

The agents have the following rights towards the principal;

1) Duty to follow principals’ directions or customs; this is first duty of an agent to act within
the scope of authority conferred upon him and perform the agency work according to the
directions given by the principal,
2) Duty to carry out the work within reasonable skill and diligence; the agent must
conduct himself with skill and diligences generally possessed by a person engaged in a
 similar business. If he does not do so he must compensate he principal for any loss in respect
of his negligence,
3) Duty to render true accounts; He must keep proper accounts of the principle’s money,
property and render them on demand periodically or a provided by agreement.
4) Duty to communicate; It is the duties of the agent to communicate to the principle incase
of any difficult or emergency and use reasonable skill and diligence. He should obtain
instructions before doing anything.
5) Duty not to deal on his own account; the agent must not deal on his account in the
business of agency. He should not buy or sell goods before obtaining consent from the
principal.
6) Duty not to take secret profit; the agent has fiduciary duty towards the principal. He must
not take secret profit out of agency business. He must pay all the money received by him.
However, he can deduct his remuneration or expenses incurred. If he violates this rule, he
has to account for it.
7) Duty to terminate agency; He has the duty to terminate contract of agency lithe principal
becomes insane or dies
8) Duty not to delegate; He should not delegate except under the following circumstances;
9) Where the principal expressly permits
10) Where the principal impliedly authorizes

Where the nature of agency makes it necessary to appoint a sub- agent.

a. Where it is accustomed or trade usage

b. Where the act done is purely ministerial
c. Where unforeseen circumstances arise rendering appointment of sub- agent
Rights of an agent against the principal

Right to receive remuneration

The agent has aright to receive the aged remuneration, if not agreed a reasonable remuneration.
He may also claim remuneration only when he has done all what he was supposed to do. He
may not receive remuneration if he misconducts himself. he is liable to pay the principal for
any loss that may arise due to his misconduct.

Right of retainer

The agent has the right to retain the principal's money. property in respect of his remuneration
and any expenses incurred by conducting business agency.

Right of lien

Then agent has right to retain all goods. papers and any other property whether moveable or
immoveable until he is paid all what is due to him.

Right to be indemnified against consequences of lawful acts

He has aright to be indemnified for all lawful acts done in exercise of his authority conferred
to him.

Right to be indemnified against consequences for all acts done in good faith

He has aright to be indemnified for act done in good faith though they may be injurious to the
third party

Right to compensation

He has the right to b compensated for injurious sustained by his due to the principals’ neglect
or want of skill.

Liability of the principal for the acts of the agent.

The principal is liable for the following acts;

1. All acts within the scope of his actual authority

2. Where he exceeds authority, the principal has the option to ratify it or disown an
unauthorized act
3. For any fraud, of misrepresentation made when acting within the scope of his actual or
apparent authority.

Liability of unnamed principal

Unnamed principal is a principal whose existence is known but not named. Once the agent
discloses the contract binds the principal and the agent drops out of the transactions despite the
principal is not named. The legal position of an unnamed principal is the same with that of
named principal. if the agent refuses to disclose the principal, he is personally liable.

Liability of undisclosed principal

Undisclosed principal is where an agent acts on behalf of a principal concealing his name and
not disclosing is the agent give the impression to the third party as himself is the contracting
party although the agent has the authority to act and is contracting on behalf of another. The
agent contracts on his own name. The following are the rights and liabilities of principal agent
and third party;

1) Agent- is liable to the third party

- Has aright to sue the third party if the principal remains disclosed

2) Third party- has right to sue the agent or principal or both thus they are severally liable

- has a right to refuse to perform the contract if he had not completed and if he had not
known that he was dealing with an agent.

3) Principal -has the right to sue the third party for non- performance of contract if he discloses
himself.

Personal liability of the agent to the third party

The agent is personally liable to the third party under the following cases;

1. Where the agent expressly agrees to be personally liable while contacting.

2. Where the agent acts for foreign principal
3. Where the agent acts for unnamed principal
4. Where the agent acts for a disclosed principal
5. Where the agent acts for a principal who cannot be sued e.g.an ambassador, a
minor president etc.
6. Where the agent exceeds his authority.
 7. Where there is a trade usage or custom
8. Where the agents authority is coupled with interest

Termination of agency

Agency can be terminated in any of the following ways;

1. By act of parties

2. By operation of law

By act of parties

Agency may come to an end by act of parties in the following ways;

• By agreement; Agency can be terminated by mutual agreement between the principal

and the agent.

• By revocation by the principal; the principal may revoke the authority of the agent at
any time before the agent exercises his rights so as to bind the principal unless the agency is
irrevocable, Revocation ay be implied or express. The principal my revoke agency under the
following conditions;

1. Incase of a continuous agency may revoke it in future. Notice should be given to the
agent and third party. Otherwise, the principal is liable to compensation for any loss
incurred.
2. If the agency was created for affixed period can be revoked before the fixed time expires
and without cause. the principal is liable to compensate for any loss as a result of
revocation

NB; agency is irrevocable in the following cases;

1. Where the agent himself has an interest in the subject matter of agency. this agency
is sad to be coupled with interest.
2. When the agent has incurred a personal liability in accordance with terms of
contract of agency the principal cannot be allowed to revoke leave in the agent
exposed to risks
3. By renunciation by the agent
The agent may renounce to the principal that he dos notice intend to continue with the contract
of agency against his will. He must give reasonable notice otherwise he may be liable to
compensate the principal for any damages.

By operation of law

Agency can be terminated by operation of law in the following ways;

1. Completion of business; when the business of the principal and the agent is
complete agency contract comes to an end.
2. Expiry of time; this is where the contract of agency project was made within a fixed
time, when the time expires the agency come to an end.
3. Death insanity of the principal or agent; if either of the parties dies or becomes
insane during the agency . the agency is terminated
4. Destruction of the subject matter; if the agent is appointed to a particular thing
and the thing is destroyed the agency comes to an end.
5. Dissolution of the company; if the company of the principal is dissolved the
agency is terminated
6. Principal or agent is an alien enemy; if the principal orthe agent is an alien enemy
the agency should be terminated.
7. Bankruptcy of the principal.; the bankruptcy of the principal terminates the
agency

REVIEW QUESTIONS;

1. Define the following terms-

1. agent

2. agency

3. Principal

1. Explain five the types of agents.

1 Agency may be created by implied agreement. Explain.

3. Describe the circumstances under which agency by necessity may be created.

4. Explain the essentials of a valid ratification.

5. Discuss five duties of an agent towards the principal.

6. Explain the rights of the principal

7. Under what circumstances is the agent personally liable to the third party?

8. Explain termination of agency by operation of law.

9. Explain the circumstances under which the principal may revoke the agent’s authority.

SUMMARY

LAW OF AGENCY

Introduction:
The law of agency is a branch of the law of contract where a person is employed to act on
behalf of another, creating a contract of agency.
Parties in Agency Contract:
• Principal: The person for whom the act is done.
• Agent: The person employed to act or represent the principal in dealings with a third
party.
Contract of Agency:
• A contract between the principal and the agent.
• The agent establishes a contractual relationship between the principal and the third
party.
Classes of Agents:
1. To the extent of their authority:
• General Agent: Does all acts within a particular business.
• Special Agent: Employed for specific transactions.
• Universal Agent: Authorized to do all acts the principal can lawfully.
 2. According to the nature of work performed:
• Brokers: Represent buyers and sellers in negotiations.
• Factors: Sell goods on behalf of the principal.
• Commission Agent: Employed to buy or sell goods for the best possible price.
• Del Credere Agent: Guarantees payment for goods or services sold.
• Forwarding Agent: Handles the collection and delivery of goods for importers
or exporters.
• Auctioneers: Sell goods at public auctions.
Creation of Agency:
• Express Agreement: Created by a specific agreement, either spoken or written.
• Implied Agreement: Inferred from circumstances or conduct.
• Agency by Estoppel: Principal is bound if the agent leads others to believe
they have authority.
• Agency by Holding Out: Principal is bound if they induce others to believe the
agent has authority.
• Agency by Necessity: Emergency authority to protect the principal's interests.
• Agency by Ratification: Principal adopts and accepts an act done without
authority.
Extent of Agent's Authority:
1. Actual Authority: Agent can do acts expressly or impliedly within their authority.
2. Ostensible or Apparent Authority: Agent has authority presumed by third parties
based on customs or trade.
3. Authority in Emergency: Agent has authority to act in emergencies to protect the
principal.
Duties and Rights of an Agent: Duties:
• Follow principal's directions.
• Carry out work with reasonable skill and diligence.
• Render true accounts.
• Communicate with the principal.
• Not deal on own account or take secret profit.
• Terminate the agency if the principal becomes insane or dies.
• Not delegate without permission.
Rights Against the Principal:
• Right to receive remuneration.
• Right of retainer.
• Right of lien.
• Right to be indemnified against consequences of lawful acts.
• Right to be indemnified against consequences of acts done in good faith.
• Right to compensation for injuries sustained.
Liability of Principal for Acts of Agent:
• Principal is liable for acts within the scope of actual or apparent authority.
• Liability for fraud or misrepresentation made within authority.
Personal Liability of Agent to Third Party:
• Agent is personally liable if expressly agreed or acts for a foreign or undisclosed
principal.
• Liability if the agent exceeds authority or acts against trade usage.
Termination of Agency:
1. By Act of Parties:
• By agreement.
• Revocation by the principal.
• Renunciation by the agent.
2. By Operation of Law:
• Completion of business.
• Expiry of time.
• Death or insanity of the principal or agent.
• Destruction of the subject matter.
• Dissolution of the company.
• Principal or agent is an alien enemy.
• Bankruptcy of the principal