AGENCY

An agent is a person who negotiates and concludes commercial/business transactions on behalf of

another called the principal. E.g. insurance brokers, estate agents, auctioneers, travel agents. It is an
established principle of law that a person cannot acquire rights or duties under a contract unless
he/she is a party to that contract (privity of contract). However, if a contract is concluded by an
agent on behalf of his principal, the acts of the agent are treated as if they are the acts of his
principal. I.e. the principal steps into the shoes of his agent and becomes a party to the contract
through his agent. In law, agents are recognized as having the power to affect the legal rights,
liabilities and relationships of the principal. In Cavmont Merchant Bank v Amaka Agricultural
Holdings SCZ Judgment No. 12 of 2001, the SCZ held that where an agent in making the contract
discloses both the interest and the names of the principal on whose behalf he purports to make a
contract, the agent as a general rule is not liable to the other contracting party.

Apart form having the power to affect the legal rights, liabilities and relationships of the principal,
the agent may also affect the legal position of his principal in other ways. E.g. he may dispose of the
principal’ property in order to transfer ownership to a third party or he may acquire property on his
principal’s behalf. Sometimes the actions of the agent may make the principal criminally liable [see
Gardener v Ackeroyd [1952] 2 QB 743 or 2 All ER 306]. The law recognizes the following as agents
even though they do not bear the title of agent:
(a) Company Directors and other company officials - being an artificial person, a company has to
act through human agents. Then authority to act as company agents is vested in the board of
directors. This authority may be delegated to one or more executive directors by the articles of
the company to allow him to manage the day-to-day operations of the company.
(b) Partnerships - as a partnership has no separate legal identity from its members, every partner in
a firm is an agent of the firm as well as all other partners for the purpose of the business of the
firm. Thus, a partner who performs an act for the purpose of carrying out the business of the
firm, binds the firm as well as the other partners.
(c) Employees - may be servants working under a contract of service or an independent contractor
working under a contract for services. An employee e.g. a shop assistant is the agent of the shop
owner for the purposes of making a contract of sale for the owner. He has the authority to
make statements about goods that are binding on the shop owner, his employer.
(d) Professionals - acting on behalf of clients may be the agents of those clients. E.g. a lawyer
conducting litigation is his client’s agent and may have authority to settle the case and that
settlement will bind the client. Thus the lawyer, not the client, normally signs a consent
judgment. Similarly, an accountant’s agreement or statement to ZRA will bind his client in
accordance with agency principles.

Power and Authority of an Agent

The law recognizes that an agent has the power to bind his principal in the following situations:
(a) Where the principal gives prior consent the agent’s actions - here the agent has actual
authority.
(b) Where the agent acts without the principal’s consent but the principal is estopped from denying
the agent’s authority - here agent has apparent authority.
(c) Where the agent acts without the principal’s prior consent but the principal gives retrospective
consent by way of ratification.
(d) Where the agent acts without the principal’s consent but the law deems that the principal has
consented e.g. agents of necessity (e.g. truck driver sells perishable goods when his truck breaks
down).

As the relationship between the agent and his principal is based on consent, actual authority is of
paramount importance. An agent is only entitled to be paid if he acts within his actual authority. If
he acts outside his authority he may be liable to his principal. The relationship between the
principal and a third party depends on the agent’s power to bind his principal. However, what is of
concern to the third party is the agent’s apparent authority as this is what he relies on in the
ordinary course of events. The distinction between actual and apparent authority was explained by
Diplock L.J. in Freeman & Lockyer v. Buckhurst Park Properties [1967] 2 QB 480.

Types of Authority of An Agent

[A] Express Authority - the agreement between a principal and agent may be express or implied.
Express agreement may be made orally, in writing or by deed. In general, if an agent is appointed to
execute a deed his appointment is by deed called a power of attorney.
[B] Implied Authority - arises where, although a particular action is not sanctioned by express
agreement between the principal and the agent, the principal is nevertheless taken to have
impliedly consented to the action or transaction in question. In Garnac Grain Co. v. H.M.F. Faure
and Fairclough [1967] 2 All ER 353 the House of Lords stated at p. 358 “The relationship of principal
and agent can only be established by the consent of the principal and agent. They will be taken to
have consented if they have agreed to what amounts at law as a relationship even if they do not
recognize it themselves and even if they have professed to disclaim it. An agent who has express
authority to carry out a particular task may also have additional authority to do certain acts
incidental to his authorized task For instance, an agent authorized to sell the principal’s property
has implied incidental authority to sign a contract of sale.”
[C] Apparent Authority - a person may be bound by the acts of another done on his behalf without
his consent or even in breach of an express prohibition if his words or conduct create the
impression that he has authorized the other person to act on his behalf. This is described at law as
“apparent agency or authority” or “ostensible agency or authority”. Apparent authority can be
inferred in the following situations:
(a) X is appointed to act as Y’s Managing Director, but Y expressly places a limitation on X in that he
can only enter into a contract with a third party worth more than K 50m if he first gets the
approval of the Board of directors. X then orders goods worth K 100m from a third party who is
unaware of the limitation of X’s actual authority. Here, X has apparent authority to buy the
goods and Y is bound by the contract.
(b) X is appointed to act as Y’s agent but his agency is terminated. Thereafter X continues to act and
enters into a contract with a third parry who is unaware of the termination. Y is bound as the
principal. [See: Drew v Nunn [1879] 4 QBD 661].
(c) X is never appointed to act as an agent but Y allows him to act as if he were or leads a third
party to believe that X is Y’s agent. Y will be bound to a third party in transactions entered into
by X on his behalf and within the scope of his agency.
[D] Agents of Necessity - A person who acts in an emergency e.g. to preserve the property or
interest of another may be treated as an agent of necessity. His actions will be deemed to have
been authorized even if no actual authority is given. Like apparent authority, an agency of necessity
can arise even in the absence of consent from the principal. Note: an agency of necessity only arises
in extreme circumstances where there is actual and definite commercial necessity for the agent’s
actions. The following must be satisfied for an agency of necessity to exist:
(a) There must be an emergency - something unforeseen.
(b) It must be practically impossible to get instructions fro the principal.
(c) The agent must act bona fide in the interest of the principal rather than to advance his own
interests. He must not take advantage of the principal.
(d) The agent must act reasonably in the circumstances.
An agency is common in a situation of carriage of goods by sea. It is universally accepted that a
caption of a ship may take such action in relation to the ship, and/or its cargo in an emergency, as
he deems appropriate for the purpose of preservation. He may e.g. sell or pledge the cargo to raise
capital to repair the ship or he may incur expenses on behalf of the owners in order to preserve the
cargo. He may also throw overboard (jettison) part of the cargo in the case of extreme danger in
order to lighten the ship. In respect of perishable goods or livestock, an agent of necessity may also
apply to cases of goods carried by land. Agency of necessity creates privity of contract between the
principal and the third party e.g. when the agent arranges d\for a third party to store the goods of
the principal. An agent can also rely on the necessity either to provide him with a defence to a claim
from the principal for wrongful interference with his property or as a basis for claiming expenses
that he has incurred in preserving the principal’s property.
[E] Agency arising out of Co-habitation - It is argued that a wife has authority to pledge the credit
of her husband for necessities (or vice versa). This is inaccurate for two reasons:
(a) The rule applies also to non-married couples who are cohabiting as there is a
presumption f marriage creates by the cohabitation.
(b) Cohabitation does not give rise to authority but to a rebuttable presumption that the
husband gave his wife such authority. The husband can deny he gave authority to the
wife by rebutting the presumption by showing:
a. The wife is adequately supplied with necessities.
b. The wife is provided with an adequate allowance
c. The wife has been forbidden to pledge his credit.

However, others argue that social conditions now make it old fashioned to suggest that actual or
apparent authority should not arise between husband and wife.
[F] Ratification of Agent’s Actions - Notwithstanding the absence of the agent’s actual or apparent
authority, a principal can nevertheless adopt the agent’s acts done in his name without his
authority by ratifying them, unless the acts ore to his detriment. The requirements for effective
ratification are:
(a) The principal can only ratify acts done in his name i.e. the agent must have purported to
have authority and not to have acted in his own name. See Watteau v. Fenwick [1893] 1 QB
346; Keighley Maxted and Co. v. Durant [1901] AC 240.
(b) The principal must have been in existence at the time of the agent’s actions done on his
behalf. This requirement may cause problems for promoters of companies who enter into
contracts before the company is incorporated and they cannot be ratified after
incorporation. Promoters making pre-incorporation contracts are personally liable unless
there is agreement to the effect that the company, once incorporated, shall be substituted
for the promoters.
(c) The principal can only ratify a contract/transaction if he is competent to make it at the time
of the agent’s actions and at the time of ratification. E.g. a minor cannot effectively ratify a
 contract after attaining majority if the contract would not have bound him when he was a
minor. Similarly a company cannot ratify a contract that is ultra vires its articles of
association.

Effect of Ratification
When a principal ratifies a contract made in his own name, the effect is as if the agent had been
authorized at the time of his actions. Therefore, if the agent made a contract with a third party on
behalf of the principal, a privity of contract will exist between the third party and the principal. At
the same time the relationship of principal and agent will also exist. When the principal ratifies the
agent’s actions, the agent is not liable for exceeding his authority and may be entitled to the rights
of an agent (e.g. remuneration). Similarly, a third party cannot have a claim against the agent for
breach of warranty of authority. Ratification may also have retroactive effect on the third party in
that if he makes an offer to the agent that the agent accepts on behalf of the principal who
subsequently ratifies it, the third party is bound, even if he purports to withdraw his offer before
ratification. See: Bolton Partners v Lambert [1889] 41 Ch D 295. ratification will only be effective if it
takes place within a reasonable time. Ratification will not be effective where third parties have
acquired property rights, which would be adversely affected by ratification.

Method of Ratification
A principal may expressly or impliedly ratify an agent’s actions. He may impliedly do so by any act
that unequivocally shows his intention to ratify e.g. if he starts legal proceedings to enforce the
contract with a third party which the agent entered into on his behalf. See: Bedford Insurance Co.
Ltd v. Instituto de Resseguros do Brasil [1985] QB 966; [1984] 3 All ER 766.

Duties of An Agent
Whether there is a contract between the principal or not, the law imposes a number of duties on an
agent.
(a) Duty to Obey Instructions - An agent is under a general duty to obey his principal’s
instructions. He is contractually obliged to perform the duties he has undertaken to do
under the contract and if he breaches or fails to perform these obligations, he is liable for
breach of contract. A contractual agent is under a duty to obey the instructions of his
principal given in during the course of agency, but is not obliged to obey instructions which
require him to act illegally. Moreover, the duty of a professional agent to obey instructions
may also be limited by the rules of professional conduct. The agent’s duty of obedience also
means he must not exceed his authority and this applies to both contractual and gratuitous
agencies.
(b) Duty to Exercise Reasonable Care: An agent owes his principal the duty of reasonable care
in executing his authority. The standard of care required is what is reasonable in the
circumstances and this will depend o the facts of each case. If an agent holds himself out to
be a member of a profession, he will be expected to show the standard of skill and care
expected of a reasonably competent member of that profession [Note a SC will be expected
to show and have higher competence than a newly qualified legal practitioner]. Also it is an
established principle of law that even a gratuitous agent owes a duty of reasonable skill and
care to the principal. E.g. Chaudhry v. Probhakar [1988] 3 All ER 718; [1989] 1 WLR 29, CA. –
the principal, who had recently passed her driving test, wanted to buy a car and being
inexperienced asked the agent, a friend, to find a suitable car and specified that it should
 not have been involved in an accident. The agent, who was not a mechanic, and acted
gratuitously, found and recommended a one year old VW Golf car being sold by a firm of
panel beaters and paint sprayers. The principal bought the car but later discovered that it
had been badly damaged in an accident. She sued and the agent sought to rely on old cases
as to the standard of care of gratuitous agents. He Court of Appeal held that the standard of
care of any agent is such as is reasonable in all the circumstances. In deciding what care is
reasonable, the court will take into account the fact if the agent was paid or not, the degree
of skill possessed or claimed by the agent, and the degree of reliance placed on the agent by
the principal. On the facts of this case, the agent had failed to exercise reasonable skill and
was held to be liable.
(c) Agent’s Fiduciary Duties: An agent has extensive powers to affect the principal’s legal
position and the principal must place trust in the agent. Thus the law regards the
relationship between the agent and his principal as being one of a fiduciary nature and
therefore imposes certain obligations on the agent so that the principal can be protected
against abuse of a agent’s powers to bind him to a third party. These duties can be equated
to those of trustees and directors of a company. Fiduciary duties are:
a. Duty to avoid Conflict of Interest - a rule of universal application is that a person
who has fiduciary duties to perform shall not be allowed to enter into engagements
in which he has/can have conflicting personal interests or interests which may
conflict with the interests of his principal. Arid\sing from this rule, an agent
instructed by his principal to but property but sells his own property to the principal
will be in breach of his fiduciary duty. See: Lucifero v Castel [1887] 3 Times LR 371 -
an agent appointed to buy a yacht bought it himself and then resold it to the
principal for a profit. Agent had to pay the profit to the principal. Similarly, an agent
instructed to sell the principal’s property and buys it himself will also be in breach of
his fiduciary duty as in both situations there is the obvious potential for conflict of
interest as the seller’s interest is to get the highest possible price while that of the
buyer is to pay as little as possible. Whether the agent acted fairly and paid a fair
price is immaterial and is in breach of his fiduciary duty unless there is full disclosure
to he principal of all the relevant facts and the principal consents to the transaction.
The duty to avoid conflict of interest may continue even after the end of the agency
if a confidential relationship is created by the agency continues or if it gives the
agent a special position of dominance over the principal and the transaction is
connected with that relationship. See: McMaster v Byrne [1952] 1 All ER 1362. Also
the decision in McPherson v Watt [1873] 3 AC 254 demonstrates that an agent will
still be in breach of duty even if he deals with the principal through a third party.
Here the agent was instructed to sell property but arranged for his brother to buy it
for him. When the principal discovered, he refused to complete and the court
refused to order specific performance because of the agent’s breach of duty. Where
an agent deals with his principal in breach of this duty, the principal may rescind the
contract. Many professional associations have enshrined rules against conflict of
interest in their codes of conduct e.g. lawyers, accountants.
b. Duty not to make a secret profit - an agent is under a duty not to make a secret
profit out of the transactions that he enters into on behalf of his principal. It is
irrelevant that the agent acted in good faith or that the principal suffered no loss or
that the agent made a profit that the principal could not have made or that the
 principal actually benefited from the agent’s actions. The liability arises from the
mere fact the profit was made. See: Phipps v Boardman [1964] 1 WLR 993. Note:
this duty also applies to unpaid or gratuitous agents. An agent who makes a profit
will be in breach of the duty unless all of the circumstances are disclosed to the
principal and the principal consents to the agent retaining the profit. Where the
duty is breached by the agent he may be required by the principal to account for the
secret profit.
c. Duty not to take a bribe - a bribe is a form of secret profit. Where an agent deals
with a third party on the principal’s behalf, a bribe is any payment made by the third
party to the agent, the third party knowing that the agent is the agent off the
principal and the payment is kept secret from the principal. See: Industries and
General Mortgage Co. Ltd. v Lewis [1949] 2 All ER 573. When an agent makes a
secret profit, the principal has recourse to the following remedies:
i. To dismiss the agent without notice.
ii. Refuse to pay any commission due to the agent or recover commission paid
to the agent prior to the discovery of the bribe.
iii. The principal may rescind the contract with the third party.
iv. The principal may claim the money i.e. the bribe from either the third party
or the agent.

In addition, a bribe can also give rise to criminal liability under the Corrupt Practices
Act.
d. Duty to Account - In the same way that an agent may not make a secret profit from
the use of the principal’s property, an agent is also under a duty to keep his own
property separate from that of his principal. An agent who receives money for the
principal must pay it to the principal once it is demanded. The agent must also keep
full and accurate books of account for all transactions entered into on behalf of the
principal. When the agency is terminated, the agent must deliver up to the principal
any books, accounts, and other documents given to him by the principal or which
were prepared for use in the course of the agency relationship unless he is entitled
to exercise a lien over them e.g. if he has not been paid.

Termination of Agency
The relationship between principal and agent depends on consent. If withdrawn, the agency will
automatically end, as well as the agent’s actual authority to bind the principal. An agency
relationship may be terminated in the following ways:
(a) By mutual consent between the agent and the principal.
(b) By either party unilaterally withdrawing consent.
(c) An agent may have been appointed for a fixed period of time or for a specific task or set of
tasks. Once the time elapses or the task(s) is/are completed the agency will terminate.
(d) By operation of law e.g. if the performance of the agency relationship becomes illegal (e.g.
one party becomes the citizen of an alien enemy) or impossible (where it will be ended by
the agency contract being frustrated). Death of either party will also terminate the agency
and any contract made between them. If an agent becomes insane, the relationship is
automatically terminated. The bankruptcy of either the agent or the principal will also end
the agency.
The Effect of Termination vis a vis Third Parties
The agent may continue to have apparent authority even if actual authority has been terminated. If
the principal’s conduct is such as to suggest to a third party that the agent continues to have
authority. Until the principal brings the termination of the agent’s authority to the notice of a third
party, the agent may continue to have apparent authority on the strength of the principal’s
representation. See: Drew V Nunn [1879] 4 QB 661. Here the principal became insane but his wife,
who was his agent, continued to act in his name. When he recovered from his insanity he tried to
disclaim liability for acts done by his wife during his insanity/incapacity. Held: The agent i.e. his wife,
had apparent authority and therefore he was bound. However, where an agent’s actual authority is
terminated by the principal’s death or bankruptcy the agent will automatically cease to have
apparent authority.

If an agent continues to act after his authority has been terminated, he may incur personal liability
for breach of implied warranty of authority. Sometimes an agent may suffer a potential risk when
his authority is terminated automatically without his knowledge. See: Yonge v Toynbee [1910] 1 KB
215 where solicitors were acting in a litigation for a client who, unknown to them, became mentally
incapacitated so that the agency was considered to be terminated. However, they continued to
litigate for the client and were held liable for their breach of warrant of authority and were ordered
to pay the costs of the other litigant.