THE LAW OF AGENCY

Introduction.

DEFINITION AND NATURE OF AGENCY.

Agency is a relationship which exists whenever one person authorizes another to act on his or
her behalf.
The person acting is called the agent, and the one he is acting for is called the principal. An
agent is a person who is employed to do work on behalf of another person called the
principal. An agent is recognized by law as having power to enter into transactions creating a
legally binding rights and obligations for his principal. Typically his role is to negotiate and
enter the contract on behalf of his principal. Where such a relationship exists, the acts of the
agent are taken to be the acts of the principal. Once the agent has concluded the contract on
behalf of his principal, he drops out of the picture, leaving the principal and the third party in
a contractual relationship with each other.
For example if A wants to buy land but does not have time to do it and gives the money to B,
and asks B to buy the land on his behalf, B will be acting on behalf of A. B will be the agent
and A will be the principal. When B buys the land, that land will be taken to have been
bought by A

In an agency relationship therefore we have three parties ie,

 the principal
 the agent
 the third party.

The third party is the person that the agent deals with on behalf of the principal.
Therefore in an agency relationship, the acts of the agent are taken to be the acts of the
principal. In case of liability it is the principal who is held liable and not the agent. This is
because of the dictum that he who acts through another acts for himself expressed in the
maxim “qui facit per alium facit per se”.

The law of contract generally applies to the agency relationship. However agency itself forms
one of the exceptions to the doctrine of privity of contract. Under the doctrine of privity, a
person who was not party to a contract cannot claim to enforce it, because he is not privy /
party to it. Therefore agency is an exception to the doctrine of privity in as far as a principal
who does not take part in the contract is bound by it and can also enforce it against the third
party and likewise the third party who entered a contract with the agent can enforce the same
against the principal with whom he did not enter that contract.

PURPOSE OF AGENCY.
 Convenience
In most cases especially in business transactions, it is almost impossible for a business man
to do all the work relating to his business by himself, so he employs agents to act on his
behalf.
 business efficacy.
In other cases an agent may have more experience or skill that the principal does not have,
and thus the principal employs the agent who can do the work with skill and experience.
CAPACITY OF AN AGENT AND PRINCIPAL.

It is only important that the principal has capacity to contract, the capacity of an agent is not
relevant because the agent is a mere link between the principal and third party, and he is not
bound by the contract.
Any person with legal capacity to enter into a contract can be a principal or an agent.

1. A minor/ infant
In Uganda, a minor is someone below the age of 18. While a minor can act as an agent, he
cannot appoint one. In other words a minor cannot be a principal. In Re Shepherd [1953CH
court held that a minor cannot appoint an agent because he might choose a wrong person.
2. Persons of unsound mind.
The general rule is that where a party to a contract is of unsound mind, the contract is still
binding on him unless he can prove that he was so insane at the time of the contract that he
did not know what he was doing and this was known to the other party. Therefore a mentally
incapacitated person is incapable of contracting if he can prove that he did not know what he
was doing at the time of contracting.
3. Companies.
A company has a legal personality, and in law is looked at as a person, and has capacity to
contract. However, for a company to be a legal person, it must be registered/ incorporated
with the registry of companies as required by law.

KINDS OF AGENTS.
 Universal agents.
This agent has authority which is unlimited. He has power to bind the principal by any act,
provided that such act is legal and acceptable under the law of the country in which he
operates. Such an agent therefore is one who is appointed to handle all the affairs of the
principal. This type of agency is rare. It must also be created by deed, a document called a
power of attorney giving the agent power to act on behalf of the principal.
 General agents.
This is an agent who is given authority to represent the principal in all business of a certain
kind. For example if A appoints B to manage his bonded warehouse, B would in effect have
general powers to import cars, sell them on behalf of A, and do all work that is connected
only to that business on behalf of A.
 Special agent.
This is one who is appointed to do a specific thing and once he has done it, he has no more
power to act for the principal in another transaction. He therefore has authority to do only
that specific thing on behalf of his principal. For example if X appoints Y to buy for him
land, Y will be X;s special agent appointed to buy land only, Y cannot do any other things on
behalf of X outside the specific thing he has been told to do.
 Mercantile agent.
Such an agent is a person who in his customary course of business as an agent has authority
to sell or buy goods on behalf of his principal. He is a business agent.
Types of merchantile agents.
(i) Factors. A factor is an agent who is employed to sell goods and may sell them in his
own name.
(ii) Brokers. These are also employed to buy or sell goods on behalf of their principal for
a commission. The difference between them and factors is that brokers have no
authority to sell or buy in their own names.eg. estates’ brokers, stock brokers.
(iii) Auctioneers. These are agents who are employed to sell property on behalf of a
principal by public auction or private treaty to the highest bidder. They also earn a
commission.
(iv) Commission agents. These are agents whose remuneration is a commission.
(v) Del credere agents. These are also employed to buy or sell goods on behalf of their
principal for a commission, but in return for an extra commission, undertake to
indemnify/compensate the principal, if the third party with whom they contract in
respect of the goods fails to pay.
Note. There are other types of agents who don’t fall under any of the above classifications
and these include bankers, lawyers, directors of companies and partners in a partnership.

TYPES OF PRINCIPALS.
1. Named principal. This is one whose name has been revealed to the third party.
2. Disclosed / unnamed principal. This is one where the agent only discloses his existence
but does not disclose his names/ identity.
A named and disclosed principal can sue or be sued by the third parties for the acts of
the agent.
3. Undisclosed principal. This is one where the agent does not disclose his existence at all.
The agent contracts with a third party as though he is contracting for himself.
An undisclosed principal can also sue or be sued by the third parties for the acts of the agent
as long as the agent did not exceed his authority.

CREATION OF AGENCY.
There are no legal formalities required for creation of an agency. It may be created orally, in
writing or it may be implied from the conduct of the parties. However where the agent is
appointed to sign documents under seal (deed) on behalf of another, his appointment must be
in writing in form of a power of attorney.
There are several ways in which an agency may be created/ come into existence. They
include the following.
1. Creation by express agreement. (Express agency).
This is where an agent is expressly appointed by the principal orally by word of mouth or in
writing.

2. Creation by implied agreement. (Implied agency).

This is the kind of agency that arises by operation of law. The law implies it from the
conduct of the parties. It arises in a situation where by although there was no oral or express
appointment, the circumstances and conduct of the parties clearly show that one person
acted on behalf of the other as agent, and the other accepted and adopted the acts as if he had
given the agent authority to act.
3. Agency by estoppel. This arises from the doctrine of estoppel which is to the effect that
where a person by word or by his conduct willfully leads the other to believe that a
certain set of facts exists and that other person acts on that belief, the person who made
the statement of facts will be precluded/ stopped from denying the truth of such a
statement even if such state of affairs did not in fact exist.
Thus, if a person by his words or conduct presents another person as having authority to
make contracts on his behalf, he will be bound by such contracts as if he had expressly
authorized that person to make them.

4. Agency by holding out. This kind of agency is in a way similar to agency by estoppel
because it is based on the doctrine of holding out which is based on the law of estoppel.
The doctrine of holding out refers to a situation where a person by some positive act or
conduct represents the other person a shaving authority to act on his behalf. In such a
case the principal will be said to have held out/ represented the other person as having
authority to act on his behalf and thereby creating an agency relationship. This kind of
agency is common in partnerships where every partner is said to be an agent of the other
partners.

5. Agency by necessity. This is an agency implied by law. It arises in two situations.

(a) Where an individual who has possession of another person’s property deals with it
without seeking the owner’s consent in order to protect the owners interests e.g a
carrier of perishable goods. The law assumes the consent of the owner to the creation
of agency so that the carrier has implied authority to act on behalf of the owner of the
goods. However for this kind of agency to arise, two conditions must be fulfilled.
 The agent must show that it was impossible to obtain the owner’s/ principal’s
instructions otherwise the agent will be liable for exceeding instructions. In
the case of Springer v GW Railway (1921)1 KB 257, a consignment of fruit
was found by the carrier to be going bad and the carrier sold it instead of
waiting to deliver it to its final destination, it was held that the carrier was not
an agent of necessity because he could have obtained new instructions from
the owner of the consignment. He was therefore held liable to pay damages
for the loss made to the owner. The agent must have acted in good faith and in
the best interests of the principal for example he should try to obtain the
highest price possible.
 There should be a real necessity to have forced the agent to act on behalf of
the principal. In Prager v Blatspiel (1924) the agent bought skins as an agent
for the principal but was unable to send them to the principal because of
prevailing war conditions, the agent was also unable to communicate with the
principal, he sold the skin before the end of the war. It was held that the agent
was not an agent of necessity because he could have stored the skin until the
end of the war. There was no real emergency. He was therefore held liable to
the principal.

(b) The second agency by necessity arises where a husband improperly leaves his wife
without providing proper means for her survival. Such a wife can buy goods on credit
and pledge the husband’s credit and the husband will be held liable to pay the debt on
 his return. This does not only apply where the husband is away and intends to return,
it also applies where the husband has deserted the wife and forced her to leave
separate from him. However the wife can only exercise this kind of agency in respect
of only necessaries, and not luxuries. The wife does not however enjoy this privilege
where she has wrongfully left the husband. This also applies in cases of cohabitation
However the husband does not enjoy a corresponding right to pledge his wife’s credit.

6. Agency by ratification.
This also occurs in two situations.
(a) Where a duly appointed agent exceeds his authority.
(b) Where a person having no authority purports to act.
In such situations, the principal cannot be bound by such a contract since it is entered into
without his authorization.
However, the principal can decide to ratify/ adopt/confirm the contract and thus agree to be
bound by it and in such a case, he can then be held liable under the contract. His acceptance
of such a contract is what is called ratification of contract. Ratification by the principal of
acts done by an agent when he had exceeded authority or where he acted without authority
creates an agency relationship between that principal and agent called agency by ratification.
Ratification may be express or implied from the conduct of the principal. Express ratification
is where the principal states orally/ by word of mouth or puts it in writing that he has
accepted the acts that the agent did without authority. Implied ratification occurs where the
principal does not actually say that he has accepted the acts of the agent but conducts himself
in a way that shows that he is accepting to be bound by the acts of an agent.

For example if the agent bought a car for use in the principal’s business without authorization
from the principal, and the principal well knowing that the agent had no authority to buy the
car, allows the car to be used for purposes of his business as if he had actually asked the
agent to buy it. His conduct will show that he has actually ratified the agent’s unauthorized
act.

Conditions necessary for ratification to be valid.

a) The agent at the time of contracting without authority must have claimed to be acting on
behalf of the principal. Here the agent who entered into an unauthorized transaction
must have professed to be acting on behalf of principal, named or disclosed. It is only
that principal that can subsequently ratify the unauthorized act.
b) The principal must have had capacity to contract at the time when the agent entered into
the contract on his behalf and at the time he accepts/ ratifies that contract.
c) The principal must have been in existence at the time the contract was made on his
behalf. For example if the principal is a company, at the time the contract was made on
its behalf, it should have been in existence.
A company comes into existence as a legal person after it is registered/ incorporated, so
agents cannot make contracts on behalf of a company before that company is legally
registered, if they do, such contracts will be void and of no effect and the company cannot
even ratify them. Such contracts are called pre- incorporation contracts.
In the case of Kelner v Baxter a seller sold wine to a buyer who was buying the wine on
behalf of a company. However at that time the company was not yet registered. Subsequently
 when the company was registered the company sought to ratify the contract and court held
that the company could not ratify such a contract.
d) The principal must have full knowledge of all the facts concerning the agents
unauthorized act.ie before the principal can say that he is ratifying a contract, he must be
fully aware of all the agents acts which he is going to ratify.
e) The act that the agent did should be capable of being ratified for example it should not
be a void contract, an illegal/ unlawful act.
f) The principal must ratify the entire contract and not only part or bits of it. Thus if one
part is ratified, it will be presumed that the entire contract is ratified, the principal cannot
be allowed to ratify only the benefits of the contract and avoid its burdens.

TERMINATION OF AGENCY.
Modes of termination of an agency relationship
An agency may be terminated in two main ways;
-By operation of law
-By the parties

Termination of agency by the parties

1. Mutual agreement.
Since an agency relationship is normally created by an agreement between the principal and
the agent, it could similarly be terminated by both of them agreeing to end the relationship.
This is so even if there is an agreement that the relationship will last for a given period or
indeed should be irrevocable. The agreement as to termination may be contained in the
contract creating the agency.

2. Revocation.
Since an agency is created for the benefit of the principal, he is free at any time to revoke it
or to revoke any other authority granted to the agent.
The principal must however give reasonable notice of such revocation to the agent before the
actual termination of the agency. The principal may however be liable in damages to the
agent for breach of contract where he appointed an agent to enable him earn commission and
the agent looses a chance to earn commission because of the revocation.

The revocation may be in writing or oral irrespective of whether the original agreement was
in writing. The principal must also take steps to inform the third parties of the revocation of
the agency, otherwise he will continue to be held liable for the transaction entered into by the
agent after the revocation of the agency. In Alexander Lojios V. AG of Nigeria (1938)., it
was held that although the principal has a right of revocation, a third party with whom the
agent has been dealing with is entitled to assume that the agency was still subsisting since no
step was taken to inform him that the agency had been revoked and warning him not to deal
further with the agent on the principals behalf.
The agent may be dismissed summarily if he is found guilty of any misconduct or breach of
duty to his principal. No formality is required for revocation, its effective if the principal
 informs the agent or the third party personally. Revocation may be by of word or by the
principal intervening in the course of negotiation by the agent.
Where the agency was created by a power of attorney, it should also be revoked by a power
of attorney.
A revocation may be implied where the principal withdraws all necessary facilities originally
provided to the agent for proper execution of the agency. Thus, until the principal takes such
action, the agent or third is justified in assuming that the agency is still in existence.

3. Renunciation by the agent.

This occurs where the agent personally terminates the agency relationship between him and
the principal. An agent has an implied power in all agency relationship to terminate the
agency before it ends unless its stated in the agency contract that the agency is irrevocable.
Renunciation by the agent may amount to breach of agency contract by the agent and render
the agent liable in damages to the principal.
The agent must give reasonable notice of renunciation of the agency to the principal, though
he may do away with notice where the principal is guilty of misconduct or breach of his own
duties. Renunciation may be in writing, word of mouth or by refusing to act/ by conduct.

4. Closure of business.
A principal’s closure of business terminates the agency relationship. Where an agent is
entitled to earn a commission and has missed it because of the closure of business, he can sue
for question.

Termination by operation of law.

Agency may automatically be terminated in the following ways;
5. By performance.
Where the agent was appointed to do a specific work and he has completed doing that work,
the agency will automatically end.

6. By effluxion of time.
The agency will end when the period for which it was created, has expired whether the task
has been done or not. Where no time is fixed by the parties as to how long the agency will
take, then the agency will expire after a reasonable time.

7. Frustration.
Where the agency becomes impossible to perform by reason beyond the control of the
parties, then the agency will be frustrated and therefore terminates. For example where there
is destruction of the subject matter of the agency. However, in such cases of frustration, the
agent may still be entitled to a commission or renumeration. In the case of Turner V.
Goldsmith (1891) I QB the agent was employed on a commission basis by the principle to
sale shirts, the principal’s factory where the shirts where manufactured accidently got burnt.
It was held that the principal was liable to pay the agent a reasonable sum to represent what
the agent was entitled to earn by way of a commission.

8. Death of either the agent or principal.

 Where either of the parties to the agency contract dies, the agency comes to an end. This is
because the agency relationship is confidential and of a personal nature. In Pool v Pool
(1889) it was held that if the principal dies, then the agent cannot recover expenses incurred
after his death even if at the time he incurs such expenses he is not aware of the death of the
principal.

9. Insanity of the principal or the agent.

Insanity of the principal or agent terminates the agency because the insane party will no
longer have capacity to contract.

10. Bankruptcy of an agent or principal. Where one of the parties becomes bankrupt, the agency
is terminated, because the rights of the bankrupt person are vested in the official receiver/
trustee in bankruptcy.

11. End of necessity. Where an agency was created out of necessity, it will automatically
terminate when the situation that created the necessity ends.

EFFECT OF TERMINATION OF AN AGENCY RELATIONSHIP.

1. As between the agent and the principal.

On termination the agent ceases to have authority to act on behalf of the principal. However,
the principal can still enforce his rights against the agent to which he became entitled before
the termination. Similarly the agent can also still enforce his rights against the principal that
he became entitled to before the termination of the agency.

2. As between the agent and third parties.

The third parties have to receive notice of revocation of an agency otherwise if they are not
aware that the agency was terminated and still deal with that agent thinking that the agent
still has powers to act on behalf of the principal it will be the principals fault and he will be
liable for the acts done by the agent. Therefore where the principal has communicated or
given notice of termination, then transactions with the agent after such notice will not be
binding on that principal.

END