Law of Agency

Where one person known as the agent has powers to enter into obligations on behalf of the principal underwhich he can enter the relationship between the principal and the third party.

What is the main concern of Agency Law?

1. Apportionment of liability

The principal is bound by the obligations entered into by a duly appointed agent

2. Apportionment of benefit.

Agency law determined who benefits from a transaction

3. Enforceability

Unenforceable contracts include illegal contracts. An agent who has entered a contract with a third party where he has no authority and the third party knows he has no authority enters an unenforceable contract

1. On an agent’s acts beyond his authority
2. An agent cant purport to enter into a contract where the principal doesn’t have authority. This is because an agent cant have more power than his principal.
3. Fairness and equity

Formation of Agency Relationship.

An agency relationship is consensual but need not be contractual. i.e. principal must have appointed and agent must have agreed to act for the principal. Relationship fails where consent cant be proven.

An agency relationship need not be put in contract form

An agency is formed in 4 different ways namely:

1. By express consent over general or specific things

May be oral or written

2. By implication (implied agency)

Arises from:

1. Conduct of parties.

Parties conduct may give rise to the deduction that an agency relationship exists. Such conduct may include contract of employment, non denial of certain activities

1. Issue of authority

Once certain professionals act on their level of authority, an agency relationship is deemed to have arises for example director acting for a company, partners as agents of each other and for the partnership.

• Custom of trade

Some persons include sales agents, mobile money agents etc

1. When the principal is by one reason estopped from denying the relationship. Doctrine of laches, when the principal fails to inform 3^rd parties that the agency relationship has ended.
2. By operation of the law

Best example: when someone is adjudged bankrupt, the trustee becomes his agent. Eg the Factors act establishes a mercantile agent who sells goods for others by operation of the law.

4. By Necessity

Its not a full made of appointment but rather an extension of the scope of authority of an agent. Necessity is sufficient when:

1. There must be real necessity/ a real emergency.
2. Agent must make all reasonable attempt to obtain isntructions from the principal

• There must be an existing relationship between an agent and a principal

Exercise of Authority

General rule: Where the agency relationship is express the exercise of authority will be clear. Where the relationship was not express, the authority will be exercised reasonably,

When an agent acts outside his authority:

1. The principal wont be bound and the agent will be personally liable if agent didn’t have authority or third party was aware or reasonably ought to have been aware or an agent works outside his authority
2. The third party wasn’t aware, the principal is liable but has recourse against agent.

• Where a third party works outside in excess of his authority. The principal can ratify his acts and then becomes fully liable for the act i.e. a principal cant seek recourse against agent after ratification.

Common legal problems that arise out of exercise of authority and in agency.

1. Scope of Authority
2. Term of agency
3. Necessity is subjective
4. Balance of Common law

The following acts provide for an agency relationship:

Capital Markets Act

Insurance Act

Factors Act

Estate Agents Act

Auctioneers Act

Pawn Brokers Act

How does the relationship between an agent and principal come to an end.

1. The agent and principal are at liberty to decide how their relationship comes to an end.
2. When the agent has performed the obligation for which he was appointed.
3. By revocation. The agent must be given notice as soon as possible in reasonable time
4. By operation of the law. This is by:
5. Bankruptcy
6. Death of the agent. Death by principal does not end the relationship as the obligations may be carried out by a personal representative.

• Unsound mind

5. Where an agent has been disqualified by any law
6. By denunciation. An agent can any time decide he does not want to be in that relationship.
7. When the time set ends.

Consequences of termination of an agency relationship.

1. The principal is not bound by actions that may be undertaken by the agent
2. Consequences as between the principal and agent
3. An agent is entitled to be reimbursed any expenses that has been reasonably incurred as at the date of termination in the course of performance of this obligations in the agency relationship.
4. Generally, there is no obligation in the principal to pay the agent before the performance of his obligation under the agency therefore the agent can only be paid if there is an express agreement for such payment. You cannot demand payment for work done.
5. The agent is under strict obligation to return any property, assets, money or any other material that has been given to him, entrusted to him, by or on behalf of the principal in the course of his appointment as an agent. The agent should return all property.
6. An agent has an obligation to give full and accurate accounting to his principal on any property held on or on behalf of the principal and any benefits received on the principal’s behalf.
7. The obligations of the agent continue in particular the fiduciary duties until notwithstanding the termination of the agency relationship. Some fiduciary duties include duty not to disclose confidential information, duty of no conflict of interest9dot use your position to gain some sort of advantage
8. As between the principal and the agent, there is no obligation to enter into a competing business however in an express agreement, the parties can agree on a non-competition clause. Such a clause can be determined by the court on its validity. (Giella v Cassman Brown)

Consequences on the principal

1. For the principal, he may no longer be bound by any contract or obligation entered by the agent. For the principal to be deemed not liable, the principal must have informed the agent of the termination and given notice to any third party who may contract through the agent.
2. The principal has to refund the agent for any expenses incurred in the performance of his duties
3. The principal is under obligation to discharge the agent from any performance of obligation, indemnities and performance bond
4. Consequences as between the principal/agent and third parties
5. Where a third party has contracted through an agent or a disclosed principal, all obligations entered into will be continued in force against the principal
6. Any obligation entered into by the agent after termination are not binding against the principal unless the third party had no notice of the termination and has entered into the contract/obligation in good faith
7. Principal has an obligation to inform third parties without unreasonable delay.
8. Notwithstanding the termination, a third party remains liable to the principal for any obligation entered into with the agent provided the principal was a disclosed principal, On receiving a notice of termination, the 3^rd party must hand over or transact in any property belonging to the principal not to the agent.
9. An agent is under obligation to involve third parties upon termination of his agency as soon as possible. He should not continue acting in a way to lead third parties that he has authority. Failure to he will be personally held liable for any obligations entered into and the third party will have a course of action against him for willful misrepresentation.

NB: Third party has recourse against principal if he was acting in good faith and the principal didn’t discharge his duty to disclose termination of agency relationship.