03) Agency Law

Agency is a relationship between two parties where one party agrees to act on their behalf to establish
relationships with third parties.

The Parties
1. The party who consents or permits the other to act on his behalf is called the Principal.

2. The party who is permitted to act on behalf of the Principal is called the Agent.

3. All parties with whom the Agent interacts on behalf of the Principal are called Third

Capacity to act as Principal

 A person with the capacity to enter into a contract or perform an act can appoint an Agent to execute the
contract.

Contracts of personal service, such as employment, and those requiring special skill and care, are exceptions to this
rule.

An Agent's liability to a Principal depends on their capacity to enter into a contract, and the contracting parties are
the Principal and the Third Party.

All persons of sound mind, even minors, can act as Agents. The agent's liability depends on their capacity to enter
into a contract.

Creation of Agency
 By agreement.
 By subsequent ratification.
 By the operation of the principles of estoppel.
 By the operation of law. .

Agency can arise through an agreement, either expressed or implied.

 Express agreements, whether contractual or not, can be written or oral and do not require formalities.
They confer Actual or Real Authority on the Agent.

 Implied agreements, on the other hand, occur when one party conducts themselves in a way that infers
consent for the Agency relationship. This type of agreement confers Actual Authority on the Agent.

A person acting on behalf of another without their consent or authority can ratify the act, making it
valid and effectual as if it had been authorized.

 This can be done regardless of whether the agent has exceeded their authority or had no authority.
Examples include McLean vs. Dunn and Wolff vs. Horncastle.
What acts may be ratified? Acts facilitated by an Agent can be ratified by the person in whose name and on
whose behalf, while void, forgery, or illegal acts cannot be ratified.

Who may ratify? The person who can ratify is the one in whose name or on whose behalf the act was done, as
they should have been present at the time.

 an Undisclosed Principal cannot ratify.

What constitutes ratification?

 Ratification can be expressed or implied by conduct. Express ratification signifies the person adopting the
transaction, while implied ratification is evident in actions such as suing, retaining money, or disposing of
goods.

Effect of Ratification
 Ratification grants authority to an Agent who was unauthorized at the time,
 creates rights and obligations,
 releases the Agent from liability,
 and grants them their commission,
 sometimes referred to as Subsequent Authority.

Agency by estoppel A person cannot deny agency by embassy if they represent another person as their agent,
based on their words or conduct.

Freeman & Lockyer v Buckhurst Park Properties (1964) 2 QB 480

 A In Freeman & Lockyer v Buckhurst Park Properties (1964), A and B formed a company to sell an estate.
A, not the managing director, instructed architects to obtain planning permission. The architects sued for
fees, and the company was held liable.

Agency arising by operation of law

Agency may arise from Operation of Law, mainly in two ways.
i) Presumption of Authority (Agency) by cohabitation
ii) Agency of Necessity

Agency of Necessity
 A person can act on behalf of another in an emergency where their property or interest is in danger and it
is necessary to preserve it.

 Agency by Necessity usually arises where goods are entrusted to carriers of goods by sea or land.

The principle of Agency by Necessity; -

 May authorize the disposal of property
 May entitle him for reimbursement of expenses; or
 May entitle him to set up a defence in a suit for wrongful action.
 Authority of Agents

The Authority of an Agent may be – Real or Actual Authority, Apparent Authority

Real or Actual Authority may be Express Authority or Implied Authority.

 Actual Authority is granted by the Principal to the Agent, by virtue of his appointment.
 Express Authority This is authority granted by the Principal to the Agent, in writing or orally.
 Implied Authority generally arises from the conduct between parties.

Implied Authority may take the form of; -

1. Incidental Authority (Authority to do whatever is incidental to that which an Agent is expressly
authorised to do.) –

2. Usual Authority (Authority to do whatever an Agent or a holder of an office of that particular

type, would usually be able to do.) –

3. Customary Authority (Authority to do whatever an Agent of that particular type, would

customarily possess.) –

4. Or Authority that may be inferred from the course of dealings between the relevant parties.

Apparent authority is a person's belief that another person has the authority to act on their behalf, binding
them to the actions of anyone dealing with them as Agent.

Duties and Rights of an Agent

1.Duties of Agents
• Duty to perform
 Duty to obey instructions
 should carry out his instructions with reasonable dispatch
 Duty to use Skill and Care
 Gratuitous Agent’s Duty to use Skill and Care
 Information

2. Fiduciary Duties of An Agent

• Duty to account
• Duty not to make Secret Profits
• Duty of Agent to avoid Conflicts of Interest
• Duty not to Delegate

Duties of Performance :
a)Contractual Agent’s Duty to Perform
An Agent who is appointed by a Contract is bound to act in accordance with its terms and not to exceed his
authority

 In Bertram Armstrong v. Godfrey (1830), P was obligated to sell shares when the amount reached Sh. 85
or more, but waited without selling, resulting in a legal ruling.
b) The Agent’s Duty to obey Instructions
The Agent is obligated to follow the Principal's lawful and reasonable instructions regarding the execution of
their duties.

c)The Agent should carry out his instructions with reasonable dispatch. –
If an Agent cannot carry out instructions so, he must inform the Principal.

Duty to use Skill and Care

 The agent acting for reward must exercise skill, care, and diligence in their duties, as necessary for their
profession or business.

 They must exercise the degree of skill and care required by professionals, as well as proper discretion in
their discretion.

Gratuitous Agent’s Duty to use Skill and Care

 A Gratuitous Agent, without remuneration, is liable to their Principal if they fail to exercise the expected
skill and care in their work.

 In Chaudhry v. Prabakhar (1989), the defendant was held liable for negligence after he provided
gratuitous advice to his friend, leading to the purchase of an un-roadworthy car.

Fiduciary Duties of an Agent :

Duty to account
 The agent is required to maintain separate property and money, provide accurate accounts of their
transactions, and provide all necessary documents for inspection.

Duty not to make Secret Profits

 An Agent is prohibited from making secret profits on behalf of a Principal without the Principal's full
knowledge and consent.

Duty of Agent to avoid Conflicts of Interest

 An Agent is required to avoid conflicts of interest, including those arising from other clients and personal
situations, unless Principal consent is obtained.

Duty not to Delegate

 Agency is a personal service contract, and its obligations must be performed personally. Delegation is only
allowed with Principal's permission.

 Delegation can occur when Principal knows, if authority is necessary, justified by trade or customs,
unforeseen circumstances, or if delegation was intended.

Rights of an Agent Against the Principal

1. Right to Remuneration: An agent's right to remuneration is determined by the agreement's terms,

considering relevant circumstances and customs, and reasonable remuneration is implied if no express
term is provided.

Miller v. Beale (1879) 27 WR 403

A engages an auctioneer to sell property on his behalf. No specific agreement is reached regarding
remuneration.

Held – it is implied that A should pay the auctioneer the usual and reasonable commission.
 2. Right to Reimbursement: The Agent is entitled to reimbursement for expenses, indemnification for
liabilities, and losses incurred during their agency, but not for unauthorized transactions, negligence,
default, or unlawful acts.

Agent’s Lien

 An Agent can claim a lien on goods in their possession for lawful claims against remuneration, advances,
losses, and liabilities incurred during agency, provided possession is lawful, in the same capacity as the
claim, and no agreement conflicts.

Relations Between Principals and Third Parties

Disclosed Principal
 A Disclosed Principal can sue for contracts and money received by their agent acting within their
authority, but not for agents acting outside their authority unless they were acting within their Apparent
Authority.

Undisclosed Principal

 An Undisclosed Principal is an unknown entity that acts as an agent, despite not being a party to the
contract. They can sue and be sued, and the Third Party can sue either the Principal or the Agent.

 An Undisclosed Principal cannot be sued by a Third Party under a contract made by an Agent in their
name, especially when the party's identity is material.

Termination of Agency
Termination of Actual Authority
A.The Actual Authority of an Agent may be terminated;
1. by agreement between Principal and Agent.
2. if given for a particular transaction; by completion.
3. if for a limited period, upon expiry; and in any case, upon the lapse of a reasonable period.
4. By destruction of the subject matter.
5. by the happening of an event which renders the agency unlawful or impossible to perform

B. Actual Authority is also terminated, unless it is irrevocable,

1. By death of the Principal or Agent;
2. By mental incapacity of the Principal or Agent;
3. By dissolution (of a corporate body);
4. By notice of revocation of authority, whether given by the Principal in breach or otherwise;
5. By renunciation, whether given by the Agent in breach or otherwise.

Termination of Apparent Authority Must be done by giving public notice