THE LAW OF AGENCY.

PREPARED BY AUGUSTUS MUTEMI

TOPIC 8 (WEEK 9): AGENCY

Learning outcomes

By the end of the lesson, learners should be able to:

1. Explain the “trinity” concept of relationships in the law of agency

2. Analyse the duties of an agent to the principal and to the buyer
3. Examine Kenyan law on the Law of Agency
4. Discuss the general rule on the agency relationships and the exceptions

Content
The legal nature of agency relationships

The status of an agent is comparable to that of a servant whose duty is to act within the bounds of
his authority in furtherance of the interests of his master while deriving for himself no benefits of
the undertaking beyond the agreed wage paid in return for his services. In an agency relationship
therefore, one person called the agent is appointed and authorised to act as a representative of
another called the principal in any of the following undertakings:

a) In the making of a contract

b) In the institution of an action
c) In the conveyance of immovable or other property
d) In the exercise of any proprietary right of the principal under and by virtue of a power of
attorney

A power or letter of attorney is an instrument of authority given by one person to another to act on
his behalf, such as a power to execute a deed. Under the contract, the agent is authorised to act for
and establish legally binding relations between his employer and a third party without being privy
to, or liable under, the contract on his own account. No rights or benefits accrue to him under the
contract with the third party in the absence of an agreement to assume personal liability.

As a general rule, the principal is bound by such acts as are within the agent’s authority as defined
in the deed or other contractual document or in the terms under which he was appointed. Authority
is at the core of the agency relationship and may be proved or presumed, actual or ostensible.
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As regards to personal responsibility, there is a distinction between public and private agents. If
an agent on behalf of the government makes a contract and describes himself as such, he is not
personally bound, even though the terms of the contract be such as might, in a case of a private
nature involve him in a personal obligation.

The fundamental concept of the warranty of authority was elucidated by Willes J in John Collen
v Mary Wright and others [1857] 8 EL and BL at 657 in the following words: “…a person
professing to contract as an agent for another impliedly, if not expressly, undertakes to or promises
the person who enters into such contract, upon the faith of the professed agent being duly
authorised, that the authority which he professes to have does in point of fact exist…”

If it does not exist, the person representing himself as an agent is personally liable to the third party
and cannot shift the liability to a principal who has not ratified his act.

In addition to the express terms of his contract, an agent has implied authority to do everything
necessary and ordinary incidental to the attainment of the object for which he is appointed,
provided that such authority is exercised in the usual or customary manner and in the ordinary
course of business. Common law recognises the need for an agent to possess that degree of power
or authority as it is necessary to do such acts as are customary, usual or ancillary to the carrying
out of those duties peculiar to his trade, business or profession.

A mercantile agent/commercial agent, factor, or auctioneer, for instance, has implied authority to
sell all goods in his possession in the ordinary course of his business as bailee or otherwise, and
may pass good title for value without notice of any defect of title notwithstanding want of express
authority. His authority is presumed by virtue of his legal status. An agent to sell has general
authority to do all that is usual and necessary in the course of such employment. In the words of
Earl CJ in Dingle v Hare [1859] 7 CBNS 145, “…the strong presumption is that when a principle
authorises an agent to sell goods for him, he authorises him to give all such warranties as are
usually given in the particular trade or business…”

As a general rule, an agent is impliedly authorised to act according to the custom and usages of
the place, business or profession in which he is employed. In the words of Alderson B in Bayliffe
v Butterworth [1847] 1 Exch 425 at 429: “…a person who deals in a particular market must be
taken to deal according to the custom of that market, and he who directs another to make a contract
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at a particular place must be taken as intending that the contract maybe made according to the
usage of that place…”

On the other hand, an agent may be personally liable to the third party if the custom and usage of
the trade so dictates. But evidence of a custom making the agent personally liable is inadmissible
if it is inconsistent with the express terms of the contract. Whether it is sought to bind the principal
or agent, the custom in question must be lawful, reasonable and known to the principal or otherwise
notorious in nature, so as to be considered as a matter of course.

In the absence of vitiating factors like mistake, misrepresentation, fraud, duress or undue influence,
the agency relationship which is based on mutual consent, creates an obligation between the
principal and the agent under which each acquires in regard to the other certain rights and
liabilities. It leads to the creation of privity of contract between the principal and the third party to
the effect that the contract is enforceable by or against him as if the principal had made the contract
himself. In effect, he thereby acquires rights and liabilities and is affected beneficially or adversely
in relation to the third party while the agent, who neither acquires rights nor incurs personal
liability in contract other than in the agency relationship, ceases to be privy to the contract unless
he acts as an independent contractor for his own benefit.

To be enforceable, the relationship must satisfy the essentials of a valid contract, including the
basic requirement that both the principal and the agent have contractual capacity as governed by
the common law of contract. Needless to say, the principal must have capacity with regard to the
contract created by the agent on his behalf with a third party, although the agent himself need not
have contractual capacity in order to bind the principal.

An agent may be general or special, depending on the scope of his authority and the purpose or
nature of the business in respect of which he is appointed. A general agent has extensive powers
to act for the principal in all matters and to do anything and everything within the scope of his
authority, and to undertake all transactions incidental to the particular trade or profession. A
general agent is one who has authority to act for his principal in all his business of a particular
kind, or who acts for the principal in the course of his (the agent’s) usual business or profession.
The principal of a general agent is bound by the acts of his agent which are incidental to the
ordinary conduct of the agent’s business, or the effective performance of his duties, even if the
principal has imposed limitations on his authority. Bankers and stockbrokers, for example, are
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general agents of their customers and clients in respect of all transactions undertaken on their
behalf in the ordinary course of their business.

On the other hand, a special agent is appointed for a particular purpose and is authorised to do
nothing beyond those particular acts necessary to accomplish the task for which he is employed.
He is authorised to act only for a special purpose that falls outside the ordinary course of the agent’s
business or profession. The principal of a special agent is not bound by acts that are not within the
authority conferred. Factors, brokers, and auctioneers are special agents. A factor is an agent who
is entrusted with possession of, or documents of title to, goods with actual or implied authority to
sell, pledge or raise money on their security. The principal is bound by such sale or pledge where
it is shown that the principal has armed the factor with some indicia of property, or apparent
authority, with power to pledge or deal with the property as owner or seller, even though he may
have forbidden it unless there is actual notice of the alleged prohibition.

In Folkes v King [1923] 1 KB 282, the owner of a motor car delivered it to a mercantile agent for
sale. The owner stipulated and the agent agreed that the car should not be sold at less than a
specified price without the owner’s permission. The agent intended from the beginning to sell the
car immediately for the best price he could get and to use the proceeds for his own purposes. On
the day on which he got the car, he sold it for less than the specified price to a purchaser who
bought it in good faith and without notice of the agent’s fraud. The agent misappropriated the
proceeds, and the defendants subsequently purchased the car.

In an action in detinue by the owner of the car against the defendant for the return of the motor
car, as for its value, and for damages for detention, it was held that:

a) The defendant acquired a good title

b) The mercantile agent had not rendered himself liable to be convicted for larceny by a trick,
inasmuch as he was authorised by the plaintiff to pass the property in the car to a purchaser
c) As the plaintiff in fact consented to the mercantile agent having possession of the car, it
was immaterial whether the latter committed larceny by a trick

The Concept of authority

In agency law, the terms ‘authority’ and ‘power’ are sometimes used synonymously particularly
with regard to the scope of the agency relationship. Authority is the oral or written permission
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conferred upon a person by another to do a particular thing. It is a factual concept and may create
power. Power on the other hand is the ability of the agent to affect the legal position of the principal
in relation 3rd parties. It is a legal concept and exists independent of authority. The agent has 3
types of authority

(a) Actual authority: this is authority actually given to the agent by the principal e.g. I am
authorising you to take my cow to the market. It may be written or oral.

(b) Ostensible or apparent authority: This is the authority which in fact the agent has not been
given by the principal but which he appears to have by reason of the principal’s conduct. e.g. a
driver can ask a petrol station attendant to fill the tank and the owner will be liable to pay for the
fuel

(c) Presumed authority: This is the authority which the law deems the agent to have. It is conferred
upon the agent by law. It is not given by the principal nor is it based on the principals’ conduct. It
is the authority exercised by agents of necessity and from cohabitation.

Formation of agency

The law prescribes no particular manner or form in which an agency relationship may be created.
Generally speaking, a person becomes an agent if he acts for another with the consent of that other,
or by operation of the law, or by express agreement. The contractual relationship of principal and
agent may arise in any one of the following ways:

Express appointment

Either orally or by express agreement in writing. No formalities required. The only exception is
when the appointment is intended to confer power and authority on the agent to execute a deed on
behalf of the principal, in which case the appointment must be by deed known as power of attorney.
An example is the contract for the deposition of an interest in land, which is required to be in
writing and signed by all the parties and whose signatures must be duly attested as required by
section 3(3) of the Law of Contract Act (Cap 23). In relation to a body corporate, however, the
appointment of an agent to execute contracts for the disposal of an interest in land must be by
power of attorney registered under the Registration of Documents Act, as stipulated in section 3(6)
of Cap 23
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Agency by estoppel

By apparent authority, or by conduct. For example, a person may conduct themselves in such a
manner as to suggest or lead others to believe that another person acts as his agent. His conduct in
the particular circumstances precludes him from denying the authority of that person to act as his
agent. Estoppel or implication. Agency may therefore be inferred from the conduct or factual
situation of the parties. The inference is founded on some eventuality which suggests that one party
intends that the other has his authority to act for and bind him in legal relations with a third person
even though such agency never really existed. This was established by the general rule in the words
of Lord Cranworth in Pole v Leask [1863] 33 LJ Ch 155 as follows:

“…No one can become the agent of another person except by the will of that person. His
will may be manifested in writing or orally or simply by placing another in a situation in
which according to the ordinary rules of law …or…according to the ordinary usages of
mankind, that one is understood to represent and act for the person who has so placed
him…this proposition, however, is not at variance with the doctrine where one has acted
as from his conduct to lead another to believe that he has appointed someone to act as his
agent, and knows that that other person is about to act on that belief, then, unless he
interposes, he will in general be estopped from disputing the agency though in fact no
agency really existed…another proposition to be kept constantly in view is that the burden
of proof is on the person dealing with anyone as an agent through whom he seeks to charge
another as principal. He must show that the agency did exist, and that the agent has the
authority he assumed to exercise, or otherwise that the principal is estopped from disputing
it.

For example, a retired partner is bound by contracts made by the remaining partners with whom
he previously dealt or had dealings with the firm, or who had knowledge of his membership but
had no notice of his retirement. A retiring partner, therefore must give reasonable public notice of
his retirement failing which he will be held liable for the partnership debts due to his conduct
which induces other to rely on his credit as a partner. He is presumed to have retained his former
authority and will incur liability as such. See also “this person is no longer allowed to act for or on
behalf of company XYZ”.
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The rule of the agency by estoppel is applicable in law related to partnership too. The concept of
‘holding out’ is in essence application of the principle of estoppel, which in itself is a rule of
evidence according to which a person is prevented or ‘estopped’ from contradicting his previous
statements made, which was believed to be true. Holding out refers to a course of action or
omission which leads others to believe that the person possesses an authority which in fact he
doesn’t. In simple terms, if a person represents that he is a partner of a particular firm, and some
other person carried on some transaction believing him to be a partner of the firm, then is estopped
from denying this representation later on.

In the case of Scarf v Jardine [1882] 7 AC 345, a retired partner of the defendant firm negotiated
a contract with the plaintiff who did not know that the partner had retired. It was held that the firm
was liable.

There are exceptions to the rule established in the Scarf v. Jardine case as given below:

1. The death of a partner constitutes sufficient notice by itself.

2. Insolvency of a partner is also sufficient notice.
3. If one has been a dormant or sleeping from beginning to end, notice can be dispensed with
as neither the customers nor the clients know of his participation in the firm.

In English law, Partnership by holding out is referred to as apparent partnership instead, and the
legal provisions in both countries are very similar. In Smith vs. Bailey [1891] 2 QB 432, it was
decided that the liability on the principle of Estoppel extends only on account of credit given to
the firm and not to torts or civil wrongs committed on behalf of the firm.

Agency inferred from cohabitation

Although a contract of marriage by itself does not confer upon the wife power to bind the husband
in contracts with third parties, agency to do so, and power to make him liable, may be inferred
from cohabitation whereby a wife is presumed to be the husband’s agent with apparent or
presumed authority to pledge his credit for necessaries suitable to his situation in life and which
normally fall within the wife’s province to purchase. In the words of Thesiger LJ in Debenham
v Mellon [1880] 5 QBD 394 at 402,
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“…there is a presumption that she has such authority in the sense that a tradesman
supplying her with necessaries upon her husband’s credit and suing him makes a prima
facie case against him upon prove of that fact and of cohabitation. But this is a mere
presumption of fact founded upon the supposition that wives cohabiting with their
husbands ordinarily have authority to manage in their own way certain departments of the
household expenditure and to pledge their husband’s credit in respect of matters coming
within those departments…”

Notably, it is the act of cohabitation and not proof of actual authority that binds the husband. In
other words, “…during cohabitation, there is a presumption arising from the circumstances of the
cohabitation, of their husband’s assent to contracts made by the wife for necessaries suitable to his
degree and estate…”. This was the position of the court in Etherington v. Parrot (1703) X. Salk.
Iz8. Lord CJ Holt continued by stating that “…"While they cohabit the husband shall answer all
contracts of hers for necessaries, for his assent shall be presumed to all necessary contracts upon
the account of cohabiting, unless the contrary appears…"

When is a husband liable? Depends on the circumstances of each particular case. In Phillipson v
Hayter Law R. 6 C. P. 38 (1870), Bovil CJ stated as follows: “…what the law infers is this: that
his wife has authority to contract for things that are really necessary and suitable to the style in
which the husband chooses to live, in so far as the articles fell fairly within the domestic department
which is ordinarily confined to the management of the wife…”. He continued to state that:
“…unless she has been held out by her husband as one having power to contract on his credit, he
is not responsible…”. In Debenham, Thesiger LJ held that “…the liability of a husband for debts
incurred by his wife during cohabitation is (mainly) based upon the ordinary principals of
agency…”

It must however be borne in mind that the presumption of agency created by cohabitation is not
absolute and does not depend upon the contract of marriage per se. The husband may rebut the
presumption of authority inferred from cohabitation and avoid liability as principal if he shows
that any of the following circumstances prevail:

a) That the wife was adequately provided with necessaries or with sufficient means to obtain
them
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b) That he had forbidden her from pledging his credit and that this fact was duly notified to
the parties dealing with her
c) Cohabitation has ceased due to judicial separation or separation under a deed, dissolution
or nullification of their marriage whether or not such separation of marriage is subject to
payment of maintenance
d) He has cautioned the specific tradesman not to supply goods on credit or that he had given
reasonable public notice disclaiming liability for his wife’s debts
e) The goods so procured were excessive in quantity and extravagant in quality, or were
otherwise unsuitable or unsuitable.

Agency by ratification

In principle, an act of the agent done in the first instance without, or in excess of, authority does
not bind the principal. On the other hand, the relationship of principal and agent may arise where
the principal ratifies and adopts a contract purportedly made by his agent with a third party for and
on his behalf either without any antecedent authority or in excess of such authority as he had.
Consequently, the principal is bound by the act of the agent whether it is for his detriment or
advantage as though the act was done with his authority. It was so stated by Chief Justice Tindal
in Wilson v. Tumman, 6 Man. & Gr. 236 (1843) where he stated that: “…"That an act done for
another by a person, not assuming to act for himself, but for such other person, though without any
precedent authority whatever, becomes the act of the principal, if subsequently ratified by him, is
the known and well-established rule of law. In that case the principal is bound by the act, whether
it be for his detriment or for his advantage, and whether it be founded on a tort or a contract, to the
same extent as by, and with all the consequences which follow from, the same act done by his
previous authority."

Now the question immediately arises, if the ratification refers back to the time of the formation of
the original contract between the agent and the third party just as if the agent were equipped ab
initio with conclusive authority, can the third party withdraw his offer in the interval between its
acceptance by the agent and its affirmance by the principal? The question arose in the English
Court of Appeal in 1889 in the case of Bolton Partners v. Lambert, 41 Ch. D. 295 (1889). In
that case the defendant had made an offer of purchase to a certain Scratchley, who was agent to
the plaintiff company, but was not authorized to make any contract of sale. Scratchley accepted
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the offer on behalf of the plaintiffs. The defendant subsequently withdrew his offer, whereupon
the plaintiffs ratified Scratchley's acceptance. The Court of Appeal held that the defendant's
withdrawal was inoperative and that the plaintiffs were entitled to specific performance.

Kekewich J proceeded to explain the retrospective effect of the doctrine of ratification at 301 thus:

“…when a principal on whose behalf a contract has been made, though it may be made in the first
instance without his authority, adopts it and ratifies it, then, whether the contract is one which is
for his benefit and which he is enforcing, or which is sought to be enforced against him, the
ratification is referred to the date of the original contract, and the contract becomes as from its
inception as binding on him as if he had been originally a party…”

Cotton LJ put it thus at 306:

“…the rule as to ratification by a principal of acts done by an assumed agent is that the ratification
is thrown back to the date of the act done and that the agent is put in the same position as if he had
had authority to do that act at the time the act was done by him…”

Till ratification, the principal is not bound. He has the option to adopt or not to adopt what the
agent had done.

It must be born in mind, however, that the principle of ratification will not apply freely without
qualification. For the ratified contract to bind the principal, the following conditions must be
fulfilled:

1. The principal must ratify the whole contract

2. Ratification must be within a reasonable time
3. The principal must have been disclosed. In Watson v Swann [1962] 11 CBNS 756 at 771,
it was held as follows: “…to entitle a person to sue upon a contract it must be shown that
he himself made it or that it was made on his behalf by an agent authorised to act for him
at the time, or whose act has been subsequently ratified and adopted by him and the person
for whom the agent professes to act must be capable of being ascertained at the time…”.
The common thread running throughout these cases is therefore that the doctrine of
ratification does not apply to undisclosed principals. No valid reason can be advanced to
subsequently bind an undisclosed party in the absence of evidence that it was intended by
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the contracting parties that other person be so bound in a relationship to which only they
were privy. Based on the doctrine, the undisclosed principal with whose authority an agent
acts is entitled to enforce the contract made on his behalf provided that other requirements
are also met, including the following:
4. The principal must have had contractual capacity. For example, a contract entered into by
promoters on behalf of a company before it comes into existence cannot be effectively
ratified by the company after its incorporation as was held in Kelner v Baxter [1886] LR
2 CP 174. The promoters are personally liable to the third party, and subsequent ratification
by the company does not release them from liability. The holding turned upon the general
rule that where a contract is signed by a person who professes to be signing “as agent” but
who has no principal existing at the time, and the contract would be wholly inoperative
unless binding upon the person who signed it, he is personally liable on it, and a stranger
cannot by a subsequent ratification relieve him from that liability.
5. The particulars of the contract must be known to the principal
6. The contract must be lawful and enforceable

Agency by operation of the law

Authority to bind a principal in contract may also be conferred by operation of the law to an agent
who acts out of genuine emergency or necessity to protect the principal’s property or interest in
goods from imminent danger of perishing or from liability to waste or deterioration. This doctrine
applies where there is already some existing contractual relationship between the principal and the
person who acts on his behalf. In cases of accident or other emergency, a carrier of goods or master
of a ship is entitled to enter into a contract and bind the owners of the cargo notwithstanding want
of express authority provided that he does so with intent to salvage or mitigate loss of the cargo.
In every case, the act in question must be performed in good faith and not for the benefit or
convenience of the agent. A bailee who sold furniture entrusted to him for storage merely because
the owner failed to collect it after numerous written requests to do so was held liable in conversion.
Mere inconvenience caused by continued storage is not sufficient reason to warrant disposal of
goods, and the law does not operate in such circumstances to confer an authority or a person to do
so as though he were an agent of necessity. Whether or not an emergency has arisen to justify the
presumption of authority to bind the principal at common law is a question of fact dependent on
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the circumstances of every case. The decision in Sachs v Miklos [1948] 2 KB 23 is authoritative.
In 1940, the owner of certain furniture was allowed by the first defendants to store it free of charge
in their house. Thereafter, those defendants lost touch with the plaintiff through the latter’s failure
to keep them informed of his whereabouts. In 1943, the first defendants required the space taken
up by the furniture and wrote two letters to the plaintiff at an address supplied by his bank. They
received no reply and their letters were not returned. Their attempt to reach him by telephone was
also unsuccessful. Deciding that they would no longer keep the furniture, the first defendants
handed it to the second defendant, a firm of auctioneers, who duly sold it at an auction for £15. In
1946, the plaintiff demanded the furniture from the first defendants, who tendered £15. As the
value of the furniture had meanwhile risen greatly, the plaintiff brought an action for conversion
and detinue, claiming damages on the basis of the increase in value. The County Court judge found
that the first defendants had made every reasonable effort to trace the plaintiff and that they were
therefore entitled as agents of necessity to sell the goods. On appeal by the plaintiff, it was held
that:

1. Those facts gave rise to no agency of necessity since they exhibited nothing in the nature
of an emergency compelling the first defendants to sell the furniture
2. The first defendants were therefore not entitled to sell
3. All the defendants were consequently guilty of conversion
4. If the plaintiff received the first defendant’s letters in 1943, he then knew, or ought to have
known, that the furniture would be sold if he did not collect it, and was through his inaction
himself the cause of his loss
5. If, on the other hand, he did not receive those letters, he was entitled to damages in respect
of the increase in value of the furniture between the dates of the sale and of his discovery
of it

The rule is that the authority to so act must not be assumed unless it is a matter of genuine
emergency. It must also be shown that the course adopted was reasonably necessary in the
circumstances, and that the agent was practicably unable to communicate with the principal to
obtain express instructions without delay. The agent must have had no alternative but to act in the
manner in question so as to bind the principal. Therefore in times of emergency, a master of a ship
or other carrier is by law presumed to have authority to and may dispose of perishable goods which
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may deteriorate due to delay in delivery to the appointed destination in good condition as initially
anticipated. He may also pledge the owner’s credit for emergency repairs of the ship, or for basic
supplies, to enable him to execute the voyage. But such authority will not be inferred when the
emergency which made its presumption necessary has ceased.

Rights and duties under a contract of agency

An agent does not incur personal liability and has no rights with regard to third parties if he acts
within the scope of his authority unless:

1. He expressly assumes personal liability to the third party with whom he contracts
2. The custom or usage of trade, business or profession in which he is engaged dictate that he
be personally liable to the third party
3. He draws and signs a negotiable instrument in his own name without indicating on the face
of the instrument that he does so in his capacity as an agent for another person
4. He purports to act for a principal who in fact does not exist, and executes a deed in his own
name while leading the third party to believe that he does so as an agent
5. He has authority and in fact acts for an undisclosed principal, in which case the third party
may unequivocally elect to enforce the contract either against the agent or his principal
upon establishing his existence and identity. If he finally elects to sue one, the third party
cannot subsequently institute an action against the other on the same contract or cause of
action and for the same relief.
6. He acts without or in excess of his authority in breach of the implied warranty of authority

The rule was established in Yonge v Toynbee [1910] 1 KB 215 where the plaintiff commenced
defamation action in the court against the defendant, and instructed the lawyers W and Sons to act
on their behalf. Unfortunately during these proceedings, and entirely unbeknown to their lawyers,
the plaintiff was declared legally insane. As a result, the plaintiff's legal action was struck out by
the court by the defendant, and then sought costs from W and Sons on the basis that they had no
legal authority to represent the defendant, as the defendant being insane, even though they had no
knowledge of this at the time. The defendant was not legally liable for these costs, due to their
insanity. It was held that the defendant’s lawyers were liable for costs, as their implied agency to
act on the behalf of their defendant ended with the insanity of their client. Swinfen Eady J summed
the legal position thus at 227: The liability of the person who professes to act as agent arises:
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1. If he has been fraudulent

2. If he has without fraud untruly represented that he had authority when he had not; and
3. Where he innocently misrepresents that he has authority where the fact is either that he
never had the authority or that his original authority has ceased by reason of facts of which
he has not knowledge or means of knowledge. On the other hand, the agent in so acting
can only avoid personal liability where he expressly disclaims any warrant of authority
thereby leaving it to the third party with whom he transacts to assume the risk of such
damage as may ensue from the absence or defect of authority if that is the case. Where the
authority upon which an agent is professing to act is a continuing authority, there is a
continuing representation by him that he has authority to do the series of acts and an implied
contract or warranty that he possesses such authority

Implied duties of the agent

1. To perform those acts which he has contractually undertaken to perform, so long as the
acts in question are lawful and are not rendered void by statute or common law
2. To obey all lawful orders and instructions of his principal and to do all things necessary
and incidental to the execution of his express authority, including instructions as to the
manner prescribed by the principal for the performance of the acts for which he is
employed. In the absence of express instructions, or of custom or usage of trade or business,
the agent is bound to use reasonable skill and diligence in exercising his discretion for the
benefit of his principal.
3. To exercise due care and skill in the performance of his part in the contract. The standard
of care is that which an agent in his position would usually possess and exercise
4. To act personally, since agency is a contractual relationship whereby the principal reposes
trust and confidence on the agent personally to perform those tasks for which he is
employed. The agent cannot therefore delegate to a third party. An act done by a sub-
delegate will not bind the principal unless the principal
i. The principal ratifies the act of the sub-delegate; or
ii. The nature of the contract performed on the principal’s behalf makes sub-delegation
inevitable or unless sub-delegation is otherwise allowed by the contract of agency
or common law
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5. To respect the principal’s title to goods and money received on his behalf in the course of
business for which the agent is engaged, and not to do anything that tends to defeat or
challenge the principal’s title thereto.
6. To account for and pay all money received by him to the use of his principal regardless of
whether such money is received under an illegal transaction, provided that the object of the
contract of agency is itself lawful
7. To honestly discharge his fiduciary duty of trust and confidence and to act with due fidelity,
and not to allow his personal interests to conflict with those of the principal. Not to make
secret profits, must disclose all material facts, etc.

Duties of the principal

To remunerate the agent for the work done, and to indemnify him for any loss and all charges,
expenses and liabilities properly incurred in due performance of the acts for which he is engaged.
The agent’s right of action for indemnity accrues notwithstanding non-disclosure by him of the
principal’s name or identity to the third party with whom he transacts. In Dalgety & Co. Ltd v
Cluer (1961) EA 178, it was held that the appellants had the right to be indemnified by the
respondents even though they had failed to comply with the respondent’s directions. The court
found as a fact that the respondent ratified the contract which the appellants had entered into with
Watkins Ltd and acknowledged that the appellants were entering into the contract as his agents,
although by reason of the non-disclosure of the agency to Watkins Ltd the appellants were to be
treated as contracting with Watkins Ltd as his principals. As stated by Sir Ralph Windham CJ, the
general rule is that when a person acting for an undisclosed principal contracts with a third party,
he contracts with that party as an apparent principal and renders himself primarily liable to the
third party as principal, while at the same time, as between himself and the undisclosed principal
whom he is screening from the third party, he enters that contract as agent of the undisclosed
principal, and can recover from the latter any sum that he has lawfully and reasonably spent in
connection with the contract while acting within the scope of that agency.

Termination of agency

By act of the parties or by operation of the law. An agency relationship is determined by act of the
parties by mutual agreement, by the agent renouncing his authority or by revocation of the agent’s
THE LAW OF AGENCY. PREPARED BY AUGUSTUS MUTEMI

authority by his principal, in which case the principal is under a duty to notify his clients and
employees. Termination by operation of the law occurs in any of the following circumstances:

1. By performance or completion of the transaction for which the agent is employed

2. Upon expiry of the period, if any, fixed for the duration of the relationship
3. By the happening of some event which renders the agency unlawful or unenforceable, such
as a subsequent illegality or destruction of the subject matter
4. By the death, insanity or bankruptcy of one of the parties

Summary
The Law of Agency seeks to regulate the “trinity” of relationships between the principal, the agent,
and a third party who, in Commercial Law, can be the buyer. In this lesson, students have been
taken through the legal nature of agency relationships, the formation of an agency relationship,
types of agents, duties of the agent and those of the principal, and termination of the agency
relationship, among other concepts.

Activities
Drafting the contract of agency

Discussion questions
Gauge your understanding of the Law of Agency by answering the following questions:

1. Explain the concept of “trinity of relationships” as used in this lesson

2. How is the agency relationship created?
3. Wat is the role of the law in an agency relationship?
4. What are the duties of the agent in an agency relationship?