THE LAW OF AGENCY

Who is an agent and a principle

An “agent” is a person employed to do any act for another, or to represent another in dealing
with third persons.

The principal is the person for whom such act is done, or who is so represented.

The relationship between an agent and a principal is called an “Agency.”

An agent therefore brings together his principal and a third person.

Example-

A appoints B to Purchase a house for him.

A is the principal,

B is an agent

The relationship between them is that of Agency.

GENERAL RULES OF AGENCY

1. Acts should not involve personal skill and qualifications. Like, a person cannot paint a
picture through agent.

2. For all legal purposes.

WHO MAY EMPLOY AN AGENT

According to law, any person who competent to contract may employ an agent

Example

i. Is of the age of majority

ii. Is sound mind

CREATION OF AGENCY
Under section 138 provides that the authority of an agency may be express or implied
relationship. This are explained under section 139. Moreover there are 3 main ways by which an
agency relationship can be created.

1. By express agreement
 2. By implied agreement
3. By operation of Law

1. Creation of Agency by Express Agreement

Under section 139 may be given oral or in writing. Here the appointment of the agent is made in
writing or verbally. In formal cases when written appointments are made, it is done by a power
of attorney which is normally stamped and registered.

Example: If a customer of a bank wishes to transact his banking business through an agent,
the bank will require written evidence of the appointment of the agent and will normally ask to
see the registered power of attorney appointing the agent.

2. Creation of Agency by Implied agreement

There is no evidence that the agent has been appointed by any writing or verbally. But, there are
facts and circumstances that can show that an agency has been created. In other words, agency is
implied from the special circumstances of the case.

Under this there are two types thus by Estopel and Holding out.

Agency by Estoppel

The term ‘estoppel ’ is a legal term and means that a person who has let another person believe
that a certain state of affairs exists, is not later permitted to deny that state of affairs if the
other person has acted to his detriment in reliance of that state of affairs. He is estopped or
prevented from taking a different position.

Therefore, in the law of agency if a person by words or by conduct represents to the world that
someone is his agent, he cannot later deny that agency if third parties had dealt with that person
as if he was the agent.

For example, let’s say that a person acts as if he/she were an agent of a real estate agency, so
he/she tries to represent you before third parties. In this case, the real estate agency directive
knows what is going on but does not direct its efforts to put an end to the situation because, in
one way or another, it is making a profit.

Agency by Holding Out

This arises out of the doctrine of holding out which is part of the law of Estoppel.

By Holding out: the principal is bound by the act of agent if on an earlier occasion he has made
others believe that other person doing some act on his behalf is doing with his authority.
Example: Y is X`s servant and X has made Y accustomed to bring goods on credit from Z. On
one occasion X has given amount to Y to bring goods from Z on cash. B bought goods on credit
as usually and runs away with the money. This is agency by holding out and therefore X is liable
to pay amount to Z.

3. Creation of Agency by Operation of Law

In this mode there are following agency;

Agency by necessity

By Necessity: At times it may become necessary to a person to act as agent to the other in
emergency situation where the property or interest of another is in danger . the conditions which
enables a person to act as an agent of another in necessity are as follows:

1. There should be a real necessity for acting on behalf of the principal.

2. It should be impossible to communicate with the principle within the time available.

3. The alleged agent should act bonafide in the interest of the principal.

For example: A has handed over 100 bags of butter for transportation, to a road transport
company. Actually it is bailment contract assume that in the transit all vehicles has got stopped
where it takes one week for further movement. So the transport company authorities have sold
away the butter in those nearby villages. Here agency by necessity can be seen.

Creation of agency by ratification

Ratification means subsequent adoption of an activity. Soon after ratification principal – agent
relations will come into operation. The person who has done the activity will become agent and
the person who has given ratification will become principal.

 Ratification can be express or implied. In case where adoption of activity is made by

means of expression, it is called express ratification. For example: Without A`s direction,
B has purchased goods for the sake of A. There after A has given his support (adoption)
to B`s activity, it is called Ratification. Now A is Principal and B is agent.

 The ratification where there is no expression is called implied ratification. For example:
Mr. Q has P`s money with him. Without P`s direction Q has lent that money to R. There
after R has paid interest directly to P. Without any debate P has taken that amount from
R. It implies that P has given his support to Q`s activity. It is implied ratification.
 DELEGATION OF AUTHORITY
An agent cannot lawful employ another to perform acts which he has expresses or implied
undertaken to perform personal unless by the ordinary customs of the trade a sub-agent may, or
from nature of agency as a sub agent must be employed under section 142 of Cap 345.

The basis for the provision of an agent to sub-delegate his authority comes from the well-known
maxim“

Delegatus non potest delegare

” to mean that a delegate cannot further delegate therefore an agent being himself a delegate of
his principal cannot pass on that delegated authority to someelse.

Rationale behind this Rule

Is that confidence in the integrity and competence or a particular person is at the root of
contractor agency.

Exception to the Rule where an agent can delegate

 Where the principal has expressly permitted delegation of such power Has implied by his
conduct allowed such delegation of the authority
.

EFFECTS OF APPOINTMENT OF SUB-AGENT

The legal effect of the appointment of sub-agent depends on whether such an agent has
been properly appointed.

1. Proper Appointed

Is said to be appointed properly when the appointment is made under any aforementioned
exceptional circumstances under section 142 of Cap 345. Therefore the legal effect of a sub-
agent who is properly appointed are as follows;

 The principal is bound and liable for acts of sub-agent, as it was an agent originary
appointed by the principal to the 3rd part.
 Agent is responsible to the principal for acts of sub-agent
 The sub-agent is responsible for his act to agent and not to principal but in case is guilty
of fraud or willful wrong is direct liable to the principal in this case the principal has
a choice to sue either agent or sub-agent.

2. Improper Appointment
Sub-agent is said to be improper appointed when the appointment was made without
any justification for such appointment, in other word appointment was made out of exceptionalci
rcumstances; the legal effect for improper appointment are as follows;

 Principal will not be liable for acts of sub-agent.

 The agent is responsible for the acts of sub-agent to principal as well as to 3rd person.
 Sub agent is not responsible at all hence he cannot be held liable for fraud or willful
wrong.

DUTIES OF AN AGENT TO HIS PRINCIPAL

I. The Agent must follow the Principal’s instructions

It is well established that an agent must perform the contract or transaction he has undertaken.
This provided under section 163 of the Cap 345.

II. Agent’s duty to exercise reasonable diligence, care and skill

The standard of care that an agent must exercise in acting for his principal is that which is
normally expected of a person engaged in such work. As long as the agent has acted with normal
care and skill having regard to the nature of the transaction and has acted in a reasonable manner
as would be expected from an agent employed in such undertaking, he will not be liable for
negligence, even if his efforts were unsuccessful.

III. The agent must act in person and not delegate his duties

The principal in appointing an agent expects him to act personally and not through others.
Accordingly, unless when appointing the agent, the principal had permitted a delegation of
duties,it is a well-established rule of agency that an agent cannot delegate his duties to others.
The Latinmaxim is Delegatus non potest delegare which means that a person to whom authority
has been delegated may not delegate it to another.

IV . Agent’s duty to maintain accounts

A fundamental rule of the law of agency is that the agent must maintain proper accounts relating
to his work as an agent. He must also not improperly mix his principal’s funds with his personal
fund and if he does so the law will presume that the entire sum belongs to the principal.
Undersection 165 of Cap 345.

IV. To communicate with the principal in cases of difficulties under section 166.

V. Duty not to make any secret profit

In so doing principal business. it makes the principal shall have the following remedy;
  To dismiss him
 To recover the secret profit
 Refuse to pay remuneration to agent
 To sue the 3rd part for promising profit
 To repudiate all transaction

VI. Duty to protect and preserve of all principal interest in situation where the principal dies or
become insane. When the principal dies or become unsound mind terminate an agency. The
agent must take on behalf of representatives of his late principal all reasonable steps for
protection and preservation and entrusted.

VII. Agent’s duty not to divulge confidential information

To act in the principal’s interest, necessarily implies that the agent is also under a duty of
confidentiality. Not only must the agent not tell others about the principal’s business and affairs
but he must not make use of such information for his personal benefit or interests. This duty of
confidentiality (also called a duty of secrecy) is a well-known rule between the banker and his
customer. A bank is the agent for its customer’s account to others.

RIGHTS OF AN AGENT
There are three main duties that the principal owes to his agent and the agent can in turn exercise
these rights against the principal.

i. The right to remuneration

ii. The right to an indemnity, he agent may incur certain liabilities or make payments on
behalf of the principal. In such circumstances the agent will be entitled by common
law principles to be indemnified against such liabilities or to recover any amounts so
paid.
iii. The right to exercise a lien, A good example is a landlord of a rented property who
has not been fully paid the rent by the tenant. The law recognizes the landlord’s
(creditor’s) right to hold on to any furniture or other goods of the tenant (debtor) until
the unpaid rent is paid. An agent can exercise a lien over the principal’s goods which
are in the agent’s possession until the amount due to the agent is settled.

Even if the above three rights of an agent are not expressly specified in the document
appointing the agent, they will be implied by the operation of law. In other words, unless any
of these rights are expressly excluded by notice to the agent, a principal is bound by them.
 TERMINATION OF AGENCY
Agency may be terminated by;

i. Operation of law
ii. Agreement between the principal and agent or Acts of parties

1. Termination of agency by Acts of parties

Normally the way in which to terminate the agency is contained in the document
establishing it. In the absence of any express provisions in the agency agreement, the agency
may be terminated in the following ways;

a) By mutual agreement between the principal and agent to bring the agency to an end.

b) By the agent completely performing the contract of agency.

c) By revocation of the agent’s authority by the principal

d) By dismissal of the agent by the principal on discovering that the agent had breached his
duties.

2. Termination by operation of law

A). Death, under section 153 and 161 of LCA

b). Mental incapacity

c). Bankruptcy of the principal or the agent terminates the agency.

d) If the subject matter of the contract for which the agent is appointed becomes illegal or is
frustrated, the agency is terminated.

e). Expiring of time; When a fixed time comes to an end to the agency it shall be terminated

f). Completion of the business of agency

h). Dissolution of a company

I). Principal or agent become alien enemy this means that when the principal and agent are
national of two different country then war break between the two nation the contract of
agency finally is terminated.

NB

When termination of an agency takes effects only when an agent becomes aware also the 3rd
party see under section 160, 164 & 165 thus once
 LEGAL LIABILITIES IN AGENCY LAW
Whenever a contract has been formed by employing an agent, issues arise as to the liability
of the three parties. Since the agent is only a conduit or means to bring about the contract, the
agent does not normally fact legal liability to the third party. The legal liability is between the
third party and principal. Accordingly, when the agent discloses to the third party that hi
is contracting as agent for a named principal, only the principal and not the agent, may sue
and be sued on the contract.

Wakefield v Duckworth [1915] 1 KB 218

A lawyer who had been retained to defend a man charged with murder employed a
photographer to obtain some photographs to be used at the trial in the case. The photographer
sued the lawyer for the cost of the photographs. But the court held that the solicitor was only
acting as the agent of the accused person and the photographer knew of this situation. Thus,
the solicitor was personally not liable to pay the photographer.