INTRODUCTION

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 principal’s legal position in relation to other parties.

This presentation will explore the below:

 Definition of agency

 Creation of agency

 Effects of contracts made by agents

 Rights and duties between principal and agent

 Termination of agency

DEFINITION OF AGENCY

An agent is a person employed to do any act for another or to represent another in dealings
with third persons. Cap 23 Laws of Kenya is the law that governs Agency law in Kenya. The
law of agency is based on the common law rules developed by English courts and rulings
made by other courts in the Commonwealth. On March 14th 1978, Kenya adopted the
convention on the law applicable to agency.
In Timmins (Town) v Brewers' Warehousing Co. Ltd (1962) Schroeder, J.A. stated, inter
alia, that "the outstanding feature of an agent's employment in a legal sense is that he is
employed primarily to bring about business relations between the principal and third persons,
and this characteristic is perhaps the most distinctive mark of the agent as contrasted with others
not agents who act in representative capacities".

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.

In agency law we have 3 parties:

1. The Principal – person who owns the goods or who hires or employs the agent;
usually the principal and the agent enter into a contract where the principal gives
 consent for the agent to do whatever representation that the principal wants the agent
to do for him. This is a complete contract unto itself.
2. The agent: this is the person employed or authorised by the principal to act for him.
The principal goes through the agent and the agent is the one who buys/sells the goods
to 3rd parties with the authority of the principal. When the Agent is selling those goods
to a third party, then there is a sales contract that is governed by the law of contract
and both the agent and the 3rd party must meet all the requirements of a contract. This
is another contract.
Note that the agent can only perform those acts which the principal is legally able to
perform.
3. The 3rd party: this is the buyer/seller.

In Agency Law the Agent can disappear after connecting the principal and the 3rd Party. The
time of termination of the contract is crucial. If by the time the Agent sells/buys the goods he
has been already deprived of the authority by the principal, then the contract is not legal. The
principal would however still be liable. If the Agent or the Principal are declared insane, the
contract is terminated.

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

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
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) 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.
CREATION OF AGENCY:

An agency may arise in the following ways:

1. Appointment (Contract) or agreement

This can be done in any way: orally, in writing or partly orally and partly in writing. However,
when the agent is required to execute a deed on behalf of the principal, he must be appointed
using a deed called power of attorney. Such instances include sale or lease of land.

2. Estoppel

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.

In Watteu Vs Fenwick a firm of brewers who owned a beer house appointed a manager to run
it and they always took out the licence in the manager’s name. They had an agreement with the
manager where certain commodities were supplied solely by the brewers. However the manager
ordered those commodities from the plaintiff who later filed a case for recovery of the costs
from the defendants. The court held that the principal is liable for all acts of the agent which are
within the usual authority of the agent regardless of any limitations put on that authority
between the principal and the agent. In addition an undisclosed principal is liable for the acts of
the agents even those in excess of the agent’s authority.

For estoppel to apply:

i. The third party must have relied on the presentation

ii. Change in the legal position as a result of the reliance

iii. 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.

3. Ratification

This occurs when someone 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).

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 of contracting.

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

4. The contract to be ratified is lawful.

5. The agent must have disclosed the principal and the disclosed principal
is the same one adopting the 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.
If the apparent ratification is obtained by a partial disclosure of relevant
facts then it has no legal effect.

7. The contract must be ratified within a reasonable time

4. Necessity

An agency of necessity may be either commercial or domestic.

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.

b) It is impossible to communicate with the owner of the goods.

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

Domestic agency of necessity: A married woman who has been for all intents and purposes
been deserted by her husband can 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. This was established under common law.

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.

5. 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. It should be noted that marriage is not essential for presumed agency
to exist as it is practically impossible for a businessman to differentiate a wife from a mistress.
"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".

The authority will cease if:

(i) The husband has expressly 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.

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

TYPES OF AGENTS

Depending on the scope of their authority, agents may be general or special. 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.
Specific agents include brokers, auctioneers, lawyers, ship captains etc.

DUTIES BETWEEN PRINCIPAL AND AGENT

Obligations of the agent

The duties of an agent to the principal are:

a) Care and skill – to exercise due diligence 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.

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

c) 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.

d) Obedience

e) Maintain an account separate from his own for the principal.

 f) Keep the principal informed. A breach of the duty renders the contract voidable at the
option of the principal.

g) Not to make any secret profit: If he does:

 The principal may recover the amount of the secret profit from him.

 The principal may refuse to pay him the agreed commission

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

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

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

h)Personal performance or 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" which is translated as
‘one to whom power is delegated cannot himself further delegate that power’

i) Confidentiality

j) To perform the duty set out by the principal.

Duties of the principal:

The duties of the principal to the agent are:

a) To pay the agreed commission when it becomes due strictly as agreed. 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 but it does not confer power of sale of the
goods in question.

b) To indemnify the agent for any expenses incurred in the execution of his mandate

Relations between the agent and the third party.

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

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. However, an agent would be
personally liable if:
 a) He executes a deed in his own name.

b) Principal does not exist or, where he does, he has no capacity to trade.

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

d) He contracts as an agent but is in fact a principal.

e) If the custom of particular trade makes him liable.

f) 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".

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) Either the agent or principal but not both can sue a third party who does not perform as
contracted.

b) If the contract is breached by the principal the third party may sue the agent or the
principal but not both. Once he commences a suit against one, he cannot abandon it in
order to sue the other.

TERMINATION OF AGENCY

An agency relationship may come to an end by:

a) Mutual consent

b) withdrawal of consent

c) Performance of the agreed activity

d) Bankruptcy of the principal

e) Frustration

f) Death of the principal.

g) Insanity of the principal - in Yonge vs Tonybee 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 unknown to their lawyers, the plaintiff was declared legally insane. As a
result, the plaintiff’s legal action was struck out by the court and the defendant then
sought costs from W and Sons on the basis that they had no legal authority to
represent the defendant as the defendant was insane. It was held that the lawyers were
liable for the costs due to the implied agency.
 h) Lapse of time

REFERENCES:

1. Kenya Law Reports

2. Wikipedia

3. Strathmore university CPA notes.

4. Saalemi N., (2009) Commercial Law simplified, Saleemi Publications, Nairobi.