AGENCY

1 AGENCY

1.1 SOURCES OF AGENCY LAW

The law of agency in Kenya is based on the common law rules which have been developed by the
English courts and the Factory’s Act 1989. The decisions of English courts are the primary reference
material for Kenyan courts, and law teachers in Kenya, regarding the principles and rules which
constitute the law of agency in Kenya.

1.2 DEFINITION OF AGENCY

There is no statutory definition of agency. However, "agency" may be described as the legal
relationship that arises when a person, called agent, is appointed or entitled to represent
another, called the principal, in a transaction with some other person(s). According to I
Halsbury's Laws of England, 3rd Edition, "an agent primarily means a person employed for
the purpose of placing the principal in contractual or other relations with a third party and it is
essential to an agency of this character that a third party should be in existence or
contemplated".

Agency has been defined as a legal relationship that exists between two persons where one called the
agent is considered in law to represent the other called the principal in such a way as to affect the
principals legal position in relation to their parties.

The agent acts in such a way that a contract is created between the principal and the third party
who is usually a buyer or seller.

1.3 The law of agency prescribes the legal rules for determining-

(a) How a person may become an agent;

(b) The rights and duties between the agent and the principal;

(c) The relations between the agent and the third party; and

(d) The manner in which the relationship between the agent and the principal may be
brought to an end.

It should be noted that the relations between the principal and the third party are governed by
the ordinary principles of the law of contract.
Characteristics of Agency

i. The agent performs a service for the principal

ii. He represents the principal
iii. Acts of the agent affect the legal position of the principal
 1.4 FORMATION OF AGENCY:
An agency may arise in the following ways:
Appointment (Contract) or agreement
Estoppel
Ratification
Necessity
Presumed Agency or from Cohabitation

a. Appointment (Contract) or agreement

This can be done in any way: orally, in writing or partly orally and partly in writing
.
Note

A deed is usually required for transactions relating to sale or lease of land.

b. Estoppel

The basis of estoppel was explained by the court in Spiro v. Lintern as follows:

"Where a man is under a duty - that is, a legal duty - to disclose some fact to another and
he does not do so the other is entitled to assume the non-existence of the fact". In the
context of the law of agency, a person who is under a legal duty to inform a third party
that the person purporting to act for him as his agent is in fact not his agent but fails to
do so may be "stopped" from denying that the apparent agent is actually his agent, as in
Spiro v. Lintern.

Elements of estoppel

Presentation needed to be acted on reliance upon the presentation

Change in the legal position as a result of the reliance
It would be inequitable to a 3rd party if the agency is not presumed.

Another example of agency by estoppel is the liability of a partner for the debts incurred
by the firm after leaving the firm if the parties who knew him to be a partner dealt with
the firm without being made aware that he had left it.

c. Ratification
This is the adoption or confirmation by a person of a contract previously entered into
by another.

"Ratification" is the legal term which denotes the agency which arises if a person adopts
a transaction which someone had concluded for him as his agent but without his express
authority. The person who adopts the transaction becomes a principal as if he had
initially authorised it (i.e. the ratification is said to be retrospective) P: Bolton Partners
v. Lambert.

Agency by ratification can only arise if;-

1. The agent purported to act for a principal

2. The alleged principal was in existence at the time the contract was formed: Natal
Land Co. Ltd. v. Pauline Colliery Syndicate in which it was held that the
purported ratification was ineffective since the company "ratifying" had not been
incorporated at the time the contract was formed.

3. The principal had capacity to enter into the contract.

4. The contract to be ratified is lawful. For example, a company cannot ratify a

contract which is beyond the objects in its memorandum of association: Ashbury
Rail Co. Ltd. v. Riche (orbiter dictum by Lord Cairns).
5. The person whose act is to be ratified professed to be the agent of the person
seeking to adopt the contract. In other words, an undisclosed principal cannot
ratify a contract:

6. The alleged principal must have been made aware of all the material facts of the
relevant transaction before he decided to adopt the contract. An apparent
ratification which is induced by a partial disclosure of relevant facts is of no legal
effect.

7. The contract must be ratified within a reasonable time

d. Necessity

An agency of necessity may be either commercial or domestic:

(i) Commercial Agency of Necessity:

At common law, a person who is entrusted with "perishable" goods of another is

entitled, in certain circumstances, to do certain things in relation to the goods as if
he had been expressly authorised to do so by the owner. This will be so if:

(a) A genuine emergency arises and the goods are in danger of perishing or being
destroyed completely unless the contemplated action is taken.

Examples

In Couturier v. Hastie

The captain of the ship had to sell the corn which had become over-heated
while the ship was in transit. The corn would have been destroyed or
become commercially useless if not sold immediately.

In G.N. Railway v. Swaffield

The horse might have died from hunger or exposure to extremely cold
weather at night if the railway company did not make arrangements for
stabling it for the night.

Accordingly, no "necessity" arises if there is no emergency.

 In Prager v. Blatspiel Ltd. the defendants were held liable for conversion
because there was no "emergency" to warrant the sale of the skins. Skins
do not get destroyed if well kept.

(b) Impossible to communicate with the owner of the goods.

In Springer v. G. W. Railway the defendants were liable for conversion

by selling the tomatoes without the owner's instructions. The railway
company could have communicated with the owner of the tomatoes ad
informed him of what was happening so as to obtain instructions on what
was to be done, but they did not do so. No "agency of necessity" therefore
arose.

(c) Good faith

It was actually necessary to do what was done and the action taken was
prompted by a desire to prevent the owner of the goods from incurring a
financial loss as a consequence of an imminent perishing of deterioration of
the goods.

(ii) Domestic Agency of Necessity

A married woman who has been constructively or actually deserted by her

husband has authority at common law to take necessities on credit for her
personal use but as her husband's agent. The husband will have to pay for the
goods as if he had expressly told her to take them on credit.

She also has authority in equity to borrow money for the purchase of necessaries.
Her husband will be ordered to pay the loan. However, she can only take
necessaries on credit or borrow money for that purpose if she does not have
adequate means of her own.

TYPES OF AGENTS

Broadly agents are either general or special depending on the scope of their authority. An
agent engaged to perform a task in the ordinary course of his business as an agent is
deemed general. An agent is special if engaged to perform a task outside his ordinary
course of business as an agent. However specific agents include:

 Factors
 Brokers
 Auctioneers
 Del credere agent
 Advocates
 Ship captain or master
 e. Presumed Agency or from Cohabitation

A woman who is living with a man is deemed to be his agent for purposes of obtaining
necessaries for the family; marriage is not essential.

"Necessaries" will depend on the standard of living set by the husband and not on the
family's actual income. An example is Nanyuki General Stores v. Mrs Peterson in
which the plaintiffs failed to recover the price of the goods they had sold to the
defendant. They thought that she was contracting with them personally but the court
held that she was, in law, contracting for her husband even though she did not tell them
so expressly. They should have implied this from the fact that she was a "Mrs".
Requirements

Rehabilitation domestic establishment necessaries

This authority is also possessed by a woman who is living with a man ostensible as his
wife but is in fact his mistress, because it is practically impossible for the businessman
to differentiate a wife from a mistress - that being largely a legal question.

The authority will cease if:

(i) The husband has forbidden the wife to take goods on credit. It does not matter
that the seller was not aware of the prohibition.

(ii) The husband had expressly told the supplier not to supply goods on credit to the
wife.

(iii) The wife had been given adequate allowance for necessaries or clothing. An
example is Miss Gray Ltd. v. Cathcart.

(iv) The goods fall outside the technical definition of "necessaries" and are legally
regarded as luxuries.

DUTIES BETWEEN PRINCIPAL AND AGENT

1.5 OBLIGATIONS OF THE AGENT

The duties of an agent to the principal are:

(a) Care and skill

.To exercise due diligence in the performance of his duties and to apply any special skill
which he professes to have.

"Diligence' primarily means that the agent, when working for the principal, must exert
the same effort, or show the same enthusiasm, as he would have exerted or shown when
acting in his own affairs.
 An agent appointed to sell must endeavour to obtain the highest price possible, while an
agent appointed to buy must endeavour to buy at the lowest price possible. For an
illustration, read: Kepple v. Wheeler.

(b). Account

To render an account when required in those cases where the agency entails keeping of
an account by the agent.

(c). Estoppel/respect for principals’ title

Not to become principal as against his employer or principal. In particular, an agent

appointed to buy property must not sell his own property to the principal and an agent
appointed to sell must not buy the property: Armstrong v. Jackson.

(d). Obedience

(e). Bonafide

(f). Separate accounts

(g) Keep the principal informed

A breach of the duty renders the contract voidable at the option of the principal.

(h). Not to make any secret profit: If he does:

(i) The principal may recover the amount of the secret profit from him.

(ii) The principal may refuse to pay him the agreed commission e.g. Andrews v.
Ramsay & Co.

(iii) The principal may dismiss him without notice, if notice is required to terminate
his agency.

(iv) The principal may sue the agent receiving and the third party giving the secret
payment for damages suffered.

(v) The principal may repudiate the contract, whether or not the secret payment had
effect on the agent.

i. Personal performance of non-delegation

Not to delegate his authority, unless the delegation is in the ordinary way of business or
is authorised by the principal. This rule is expressed in the Latin maxim "delegatus non
potest delegare".

j Confidentiality
 k. Not to disclose any confidential information or document entrusted to him by the
principal.
Performance

1.6 DUTIES OF THE PRINCIPAL:

The duties of the principal to the agent are:

a Remuneration

To pay the agreed commission when it becomes due, strictly in accordance with the
terms of the contract of agency. (An agent in possession of the principal's goods may
retain the goods as security for payment of outstanding commission. This is called a
lien (general or particular) but it does not confer power of sale of the goods in question).

b Indemnity

To indemnify the agent by refunding to him any out of pocket expenses personally
incurred in the bona fide execution of his mandate. e.g. Great Northern Railway v.
Swafield.

CONCEPT OF AUTHORITY

This is the oral or written permission conferred upon a person by another to do a particular thin. 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.
However, in agency law, the terms ‘authority’ and ‘power’ are sometimes used synonymously particularly
with regard to the scope of the agency relationship.

There are three types of authority namely;

(a) Real or factual

This is the authority, which in fact is given to the agent by the principal. It may be by word of mouth
or in written. This authority may be:

(i) express
(ii) implied
(iii) customary or usual

(b) Obstensible or apparent

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. It is based on the conditions of the principal such that
conduct determines scope. It is the authority exercised by an agent create by estoppel.

(c) Resumed 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.
1.7 Relations between agent and the third party.

The legal effects of agency depend on whether or not the agent acted for a "disclosed
principal".

1. If the agent acted for a disclosed principal by informing the third party that he was an
agent acting for a principal (whether named or unnamed) the general rule is that he
drops out of the transaction as soon as his offer has been accepted or conversely, he has
accepted the third party's offer.

He is not personally liable under the contract and cannot personally enforce it in the
event of its breach. Only the principal can sue or be sued thereunder.
Exceptions

An agent would be personally liable if:

(a) He executes a deed in his own name: Appleton v. Binks (1804)

Principal does not exist or has no capacity.

(b) He signs a bill of exchange in his own name without indicating that he is acting as
an agent.

(c) He contracts as agent but is in fact a principal.

(d) If the custom of particular trade makes him liable.

If an agent lacks authority or exceeds his authority (express or implied) he will be

liable to the third party for "breach of warranty of authority": Yonge v. Toynbee (1910).

2. If the agent acted for an undisclosed principal (i.e. a principal whose existence the third
party was unaware of because the agent did not say that he was contracting as agent):

(a) If the third party fails to perform the contract he may be sued by either the agent
or the principal (but not both).

(b) If the contract is breached by the principal the third party may:

(i) sue the principal, or

(ii) sue the agent. He cannot sue both, and cannot abandon proceedings
against one in order to sue the other.
1.8 Termination of agency

An agency relationship may come to an end by:

I. Mutual agreement, or consent

II. withdrawal of consent
III. Performance,
IV. Bankruptcy of the principal
V. Frustration
VI. Death of the principal (it being irrelevant that the agent was unaware of the death):
Kennedy v. Thomassen.
VII. Insanity of the principal: Yonge v. Toynbee.
VIII. Lapse of time