Getahun Walelgn Dagnaw (LL.M, LL.M, LL.M, LL.

B)
PhD Student, Addis Ababa University, School of Law
Lecturer, Ethiopian Civil Service University, School of Law & Federalism
Adjunct Lecturer, Addis Ababa University, School of Law

Law of Agency

Lecture Notes

Chapter I: The Conceptual and Theoretical Underpinnings on Law of Agency

Definition of Agency

o Difficulty in defining agency?

o Agency is defined as a relationship between two persons, whereby one party,
the agent, acts on the behalf of the other party, the principal, and bind the later
by words and actions.

o It can also be defined as a relationship in which a person acts for or represents

another by the latter’s authority, either in relationship of principal and agent,
master and servant, employer and employee or proprietor and independent
contractor.

What do you think is Law of Agency?

o It is a law governing the relationship between the agent, principal and third
parties. It is a law applicable to agency relationships.
o The law of agency deals with the ways in which one person, physical or juridical,
can deal with the other persons through the instrumentalities of an intermediary.
(Paul McCarthy)

Concept of Agency: Why Agency?

o One may not be able to perform a given task by himself/herself for several
reasons such as manifold functions, special expertise of the agent and mere
desires by the principal not to appear personally.
o Therefore, if a task has to be carried out in his absence or without his
involvement, there has to be an individual who can undertake the task on his
behalf.

1 Law of Agency Lecture Notes

 Getahun Walelgn Dagnaw (LL.M, LL.M, LL.M, LL.B)
PhD Student, Addis Ababa University, School of Law
Lecturer, Ethiopian Civil Service University, School of Law & Federalism
Adjunct Lecturer, Addis Ababa University, School of Law
o Agency also reduces the cost of contracting. Though it increases the number of
parties involved in a given transaction, it made it possible for individuals to utilize
the services of others in accomplishing a certain task.

o It also reduces the cost of internal organization and so indirectly the cost of
contracting by facilitating specialization of function and expanding the scares
resources of time, energy and knowledge available to the principal. It also helps
the other party (third party) who would otherwise bear some of the principal’s
higher costs in a less favorable contract price. Agent also benefits from the
compensation to be paid to him.

o By contracting through an agent, the principal may reduce the cost of spatial and
cultural differences, the need to acquire expertise, and the inconvenience of
having to deal personally with all contracting parties.

o The complexity of modern life, particularly in the commercial area, is such that the
law must permit a person to make contracts and perform other juridical acts by a
means of the representative. (Paul McCarthy)

o The concept of Agency is recognized in all modern legal systems as an

indispensable part of the existing social order. It fulfills the most diverse functions
in the public and private law of today; in particular;
 it assists in organizing the division of labor in the national and
international economy, by making it possible for a principal to extend his
individual sphere of activity.
 By its aid spanning space and time, s/he is able to have one or more
persons act for him, on his behalf, if necessary (the advantages of
Agency), for the institution of modern life based on the division of labor,
predominate to an extent that agency is everywhere prevalent.
o An agent is appointed when an individual is unable to act himself on account of
his manifold occupations, absence, illness, advanced age, etc. Or a
representative may be designated in order to take advantage of his special
capacity, knowledge, and experience even for the mere desire, such as not to
appear personally in order to avoid hostility, controversy, etc. or similar
considerations.
o Generally, the purpose of law of agency and the need for an agent, to perform
certain tasks which the principal have neither time nor knowledge, nor experience

2 Law of Agency Lecture Notes

 Getahun Walelgn Dagnaw (LL.M, LL.M, LL.M, LL.B)
PhD Student, Addis Ababa University, School of Law
Lecturer, Ethiopian Civil Service University, School of Law & Federalism
Adjunct Lecturer, Addis Ababa University, School of Law
to perform by themselves scarcely requires an explanation in the highly
commercial and industrialized world.

o Commerce would literally come to a standstill if businessmen and merchants

were not able to employ the services of factors, agents, brokers, forwarding
agents, estate agents, auctioneers and the like and were expected to do it by
themselves.

o The specialized middle men, whose purpose is to make contracts on the behalf of
the principal, are to be found in all advanced societies and, that fact that an agent
is an inevitable feature of modern and developed economy.

o Therefore, the growth of the institution of agency and rules regulation an agency
relationship, both in volume and sophistication, has a lot to do with the growth in
the importance of commerce.

In conclusion, the need for having an agent or the institution of agency is necessitated by
the fact of;

o The need to overcome time and space limitation

o The need to overcome limitations of knowledge and expertise with the growing
and complex business world

o The need to represent legal persons

o The need to overcome incapacities

Genesis and development of Agency and Law of Agency

o The concept of agency representation in the sense it is understood now is said to

emerge around the 12th Century A.D. along with slave and slave owners. the
owner used to be legally held responsible for the acts of the slave because the
later acts according to the direction given by the owner.
o The slave and slave owner relationship paved the way for the concept of
representation.
o Although the concept of agency started to be known in the 12 th century A.D. it
became significant and the rules came to be arranged in the 19 th century. The
reason for this is development of business and industrial revolution in the West.

3 Law of Agency Lecture Notes

 Getahun Walelgn Dagnaw (LL.M, LL.M, LL.M, LL.B)
PhD Student, Addis Ababa University, School of Law
Lecturer, Ethiopian Civil Service University, School of Law & Federalism
Adjunct Lecturer, Addis Ababa University, School of Law
o In spite of its high development, the Roman law did not outgrow an overall theory
agency in their law of contract. Agency is missed in the history of Roman contract
law and did not have had the importance it had in Europe.
o Under the ancient Roman law there was no the concept of agency and several
factors contributed to this absence.
 Conclusions of contracts under Roman law were ceremonial and the
person has to appear in person and adhere to formalities. The Romans
attached special significance to formal ceremonies when legal
relationships are made. And the law refuses to grant legal effect to an act
where the person was not a party at its making. Stipulations in the name of
third party and for the benefit of third party were excluded
 The Roman conception of obligation was that it is personal.
 Patriarchal economy of the Romans. The economy was least developed
and almost all business transactions were limited within the family. And
therefore, there was no need for the institution of agency.
o Romans failed to develop a complete theory of agency representation in their
contract law because they never accepted the idea that a person acting as an
intermediary should be capable of creating a valid contractual or commercial
relationship between the principal and the third party.
o As time went on, situations forced the romans to depart from this situation and
recognized the principle of “one who acts through another acts for himself”. As a
result, contracts started to be concluded between individuals, even in the
absence of the contracting parties in certain places.
o Now a days one who could not/do not want to appear personally to conclude
contracts can do it through another and what the representative has done is
considered as if done by the former.
o Under English law the concept of agency representation was well developed and
it was based on three elemental propositions;
 The creation of agency by contract, express or implied
 Non-liability of the agent for contracts made in the name of his principal,
and
 The liability of the principal for contracts made by his duly authorized
agent

o Accordingly, when compared to English law, the Roman law never developed a
theory of agency to such extent the English contract law has achieved.

4 Law of Agency Lecture Notes

 Getahun Walelgn Dagnaw (LL.M, LL.M, LL.M, LL.B)
PhD Student, Addis Ababa University, School of Law
Lecturer, Ethiopian Civil Service University, School of Law & Federalism
Adjunct Lecturer, Addis Ababa University, School of Law
Development of Law of Agency under Common Law
o The concept of agency in the common law legal system is the outcome of many
influences in history.
o It is believed that agency was not part of the common law until the 13 th century.
But because of the master servant relationship in the end of 12 and beginning of
13th century.
o These three standards gave rise to the effective development of agency under
common law;
 Emergence of class of attorneys in legal matters (1292 ordinance)
 Impact of cannon law, and
 Custom of merchants who were very active in trade with Europe
o Owing to the influence of mercantile law by which commercial activities were
developed in volume, the common law developed the principle that a principal
was in direct contractual relation with third parties in which such principle laid
down the foundation for the theory of agency.
o The genesis of such principle, which makes the principal in direct contractual
relationship with third parties in a contract made by his agent emerged from
Costace vs. Forteye (1389) – in this case Costace, an attorney and apprentice,
bought a wine for a merchant (Fortenye) and when he failed to pay the debt was
thrown to jail. Costace alleged that he bought it for his master as it was the latter
who sent him. The master approved the transaction and the Mayor decided the
Master to pay the French seller. The decision was on the basis that the
apprentice bought the wine for the use and benefit of the master.
o In the medieval period, the idea that it is possible to make a contract through an
agent, and that it is possible for a man to ratify for a contract made on his behalf
through an agent was recognized by the common law. Consequently, common
law recognized that on such contracts by an agent on behalf of his principal, it
was to be held that the principal and not the agent was liable not only when the
agent had express authority but also when he acted within the scope of an
activity to do acts of particular kind.
o In line with the wide recognition of agency contracts in the common law, which
grew in line with the rapid development of trade, a clear distinction between the
relations of master and servant was made in order to distinguish from the
relations of principal and agent.
 The agent does not work for the principal physically, nor is he subject to
the control of the principal in his physical actions.

5 Law of Agency Lecture Notes

 Getahun Walelgn Dagnaw (LL.M, LL.M, LL.M, LL.B)
PhD Student, Addis Ababa University, School of Law
Lecturer, Ethiopian Civil Service University, School of Law & Federalism
Adjunct Lecturer, Addis Ababa University, School of Law
 The servant, on the other hand, was recognized as one who, by
agreement, gives his service for another. S/he has no power to bind the
master in a contract and he works physically for another, subject to the
control of the master.

Development of Agency under Civil Law

o Compared to the common law legal system, the concept of contractual agency
developed slowly under the Civil law legal system.
o Despite its reputation at the time, the Roman law of contract never developed a
complete theory of agency.
o The principle that ‘the nature of commercial contract involves only two persons’ is
the major reason that hampered its development as the principle emphasized
strict personal tie between the contracting parties was the governing rule of the
old Roman contract law. This excluded the involvement of third parties such as
agent in business transactions.
o The concept of agency started to develop under Roman law in the 15 th & 16th
centuries and slowly recognized the activities of the procurator (free man, often
freed slave who acted as agent of a noble family).
o The development of trade and commerce in the middle ages and cannon law
contributed to the development of the concept.
o In the earliest times, as discussed so far, owing to the personal nature of the
roman law, a master or parent acquired the benefit of contracts entered into by
slaves or sons, whether they contract in their own name or in his own name
o But even though he received the benefits derived from such contract, he was not
held liable to the contacting third party. Nevertheless, at a certain point, in the
historical development of the Roman’s the agency concept, holding masters liable
for acts of their slaves or agents was observed.

6 Law of Agency Lecture Notes