THE INSTITUTE OF FINANCE MANAGEMENT

THE LAW OF AGENCY

DAR ES SALAAM,TANZANIA
PRESENTER: MBATA,U.Esq.

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 Learning objectives
• Understand the nature of agency and its
implications
• Examine the methods by which an agency
is created
• Study the duties and rights of agents
• Recognize the authority an agent has to
enter contracts

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 PART 1:
THE LAW OF AGENCY

• Understanding Agency
– The terminology of “principal” and “agent” comes from
the law of agency.
– It might be in writing, or it might exist only in
the form of spoken words and handshakes
– The common law principle in operation is
usually represented in the Latin phrase
– qui facit per alium, facit per se
– i.e. the one who acts through another, acts in
his or her own interests
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 Agency Law in Insurance
• Agency is a very important feature of modern
commercial life and describes the relationship
that exists where one party, the agent, acts
on behalf of another, the principal.
• The law deals with these involuntary creditors
according to the doctrines of vicarious liability
or respondeat superior, which make the
principal liable for torts committed by his
agent in the course of the agent’s duties

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 Who is an Agent?
• Commercial Agents (Council Directive)
Regulations 1993 (SI 1993/3053) the
commercial agent is defined as a "self-
employed intermediary who has continuing
authority to negotiate the sale or purchase
of goods on behalf of another person (the
principal) or to negotiate and conclude the
sale or purchase of goods on behalf of and
in the name of that principal
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 An Agent…..
• S.134 of the Tanzania Law of Contract Act.
• An agent is a person employed to do any act for
another or to represent another in his dealings
with third persons.
• The Insurance Act, No.10 of 2009 defines an
insurance agent“ as a person who solicits
applications for insurance, collects moneys by
way or premium and acting in accordance with
agency agreement and may find the registered insurer for
whom he acts in the issue of insurance cover and the term "agent"
shall be construed accordingly;

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 Meaning of an agent
Agent for insurer" means a person who
transacts insurance business on behalf of a
registered insurer and shall have the same
meaning as "insurance agent";
Thus, An agency can be defined as “the
fiduciary relation which results from the
manifestation of consent by one person to
another that, the other shall act on his behalf
and subject to his control, and consent by the
other so to act.
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 Remarkable Features in the
Definitions
• First, the relation is a consensual one; an
agent agrees, or at least consents to act
under the direction or control of the principal
• Second, the relation is a fiduciary one; an
agent agrees to act for and on behalf of the
principal.
• He is in no sense a proprietor entitled to the
gains of enterprise– nor is he expected to
carry the risks.
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 Legal implications
• Where an agency relationships exists, the agent,
by entering into a contract establishes privity of
contract
• between the principal and the third party. The
contract is thus enforceable both by and against
the principal and third party.
• Generally speaking, the agent effectively drops
out of the picture and has no rights or liabilities in
respect of it, provided he has acted within his
authority
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 The Legal Framework of Agency
Arrangements in Tanzania
• The law governing Agency in Tanzania is the
Law of Contract Act, Cap.345
• The law sets legal framework relating to
design, negotiation and enforcement of
agency contract
• The Law is complemented by the Insurance
Act,No.10 of 2009
• This law recognizes agents and regulates
them
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 Creation of Agency
 Agency may be created in the following
ways:
– By agreement
– By estoppels or holding out
– By operation of the law
– By necessary circumstance or necessity
 Insurance agency in Tanzania created by
agreement but regulated by law

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 Agency by holding out
• When the words or conduct of the
principal give to a third party the
impression that the person who purports to
contract with the third party is the agent of
the principal, and
• The third party, as a result, acts upon this
• The principal is 'estopped', or prevented,
from denying the existence of the agency

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 Example
• Paul leads Tina to believe that Adam is Paul's agent. Tina deals with
Adam on that basis. In this case, Paul is
• bound by the contract with Tina which Adam has made on his
behalf. This situation may have arisen in the
• following circumstances.
• 􀁠 When Adam, who dealt with Tina as Paul's authorised agent,
continues to do so after his authority as agent of Paul has been
terminated, but Tina is unaware of it.
• 􀁠 When Adam, to Paul's knowledge, enters into transactions with
Tina as if Adam were Paul's agent and
– Paul fails to inform Tina that Adam is not Paul's agent.

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 Agency of necessity
• It may arise where a person is faced with an
emergency in which the property or interests
of another person are in imminent jeopardy
and, in order to
• preserve that property or those interests, it
becomes necessary to act for that person
without his authority
• It only applies where there is already some existing contractual
• relationship between the parties, as the law is highly unlikely to allow a
person to be bound by the act of a complete stranger .
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 Pre-conditions for Agency of
Necessity to Exist
• The agent had no practical way of contacting
the principal in order to obtain the principal's
instructions
• His actions arose from some pressing need for
action
• He acted in good faith in the interests of the
principal rather than in his own interests, and
• His action was reasonable and prudent in the
circumstances

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Agency by Operation of the Law
• This occurs where the law compels the
establishment of agency relationship or
presumes existence of agency. For
example
• The Executive Agencies Act, creates
several agencies
• The Probate and Estate Administration Act
• The Employment Law

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 Agency by Ratification
• This is a situation that arise when a Principal
ratifies agency’s action
• Ratification only validates past acts of the
purported
• The principal may only ratify if the following
conditions are satisfied
– The principal must have been in existence at the time
of the agent's act
– The principal must have the legal capacity to make
the contract himself

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 Agency by ratification
• The agent must, at the time of making the
contract, either name or sufficiently
identify the principal on whose behalf he is
making the contract
• The principal must ratify the contract within a
reasonable time and a ratification of part of the
contract will operate as a ratification of the entire
contract (ie the principal cannot just select
such parts of the contract as he considers to be to
his advantage).

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 Ratification
• In order to ratify the contract, the principal
must communicate a sufficiently clear
intention of ratifying, either by express
words or by conduct, such as refusing
to return goods purchased for him by an
agent who lacked authority. Mere passive
inactivity will not amount to ratification.

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 Agents as Intermediaries
• As we have seen in previous definitions
• Agents are intermediaries in business.
• The term intermediary as used in
international trade means a third party who
offers intermediation services between two
trading parties.
• They act as a conduit pipe for goods or services offered by a
supplier to a consumer. The use of intermediaries in international
sales and marketing has prevailed over centuries in international
business

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 The Role of an Agency as an
Intermediary
• They are usually multifarious
 They range from searching markets, conclusion
of contracts, negotiation, pricing, aggregation as
well as establishing trust and reputation for the
goods, to offering technical support for
commodities, Product sourcing and promotion.
 They also offer large sale to large numbers of
potential customers as well as absorption of
credit risk

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 Why Use Intermediaries?
• Some agents hold specialized knowledge
and experience, the manufacturer or the
supplier do not have, for instance knowledge about
certain country’s trade policies, language, administrative procedures,
export issues, ,lobbying and fluctuation in the volume of trade
• Agents are the speedier means of reaching
customers and delivery of goods than the
principals themselves. Some have facilities like ware
houses, delivery trucks ,offices, laborers etc unlike the Principal

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 Reasons for Using Agents
• Agents best bears risk of trade
• Some business are new or have no sufficient
capital and facilities to reach all intended
customers or manage all costs of trading, thus
intermediaries can be very useful because of their well established
business contact, goodwill and knowledge of the customer needs

• Sometimes overproduction of commodities

necessitates the need for intermediaries in
order to wide distribute the products

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 The Legal Implications of Agency
Relationship
o “He Who Does through Another, Does
Himself”
o Contracts and acts done by agents have
the same legal consequences as if done
by the principal in person.
o Thus by appointing an agent, the principal
is enabled virtually to be in many places
and to perform many acts at the same
time

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 Authority of an Agent
• An agent's authority may be
– Expressly given
• – Impliedly given
• – Ostensible or apparent on the basis of the principal's conduct

• Thus the authority of an agent can be:-

• Actual express authority
• 􀁠 Actual implied authority
• 􀁠 Ostensible or apparent authority

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 Principal’s Liability on the Basis of
Agent’s Authority
• Actual (usual) Express Authority. The principal has
entered into an explicit agreement with the agent authorizing him to
take particular action. When the board of directors of a company
votes to authorize the president to purchase a new office building,
this is actual express authority obligations and other financial issues
• Actual (usual) Implied Authority
The principal has entered into an explicit agreement to employ the
agent, and although he has not specifically authorized the particular
action at issue, the agent can reasonably infer that authority for that
action has been delegated to him
Apparent or Ostensible Authority
The principal has no agreement with the agent authorizing the action,
but a third party could reasonably infer that the agent was authorized

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 Basis of Principal’s Liability.....

• Estoppel Authority.
The principal is “estopped” from objecting to the
agreement made by the agent if the principal could have
intervened to prevent the confusion over authority; e.g., if
the principal overheard the agreement being made and
failed to assert that the agent was unauthorized
• Ratification.
If no other authority exists, but the principal agrees to the
contract once he learns about it, this ratification binds the
principal. If the flour salesman has no authority to sell
wheat, but he makes a contract anyway, that contract is
binding if the flour company agrees to it upon learning of
the salesman’s actions

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 Agency in Insurance
• Almost, the entire business of insurance is
carried out through persons who are known as
insurance agents.
• These agents have the same common law rights
and duties as any other agents except for some
specific tasks.
• Insurers have to transact all their business only
through agents whether they be directors at the
highest level or other employees and field agents
who solicit proposals for insurance

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 Insurance Brokers
• These are agents of the Insured
• They are a class of professional technical experts,
who can be procured by those wanting insurance, to
give advice and professional assistance and act for
them in arranging insurance at the best terms possible
• Being a skilled agent he is always bound to act with
reasonable diligence and competent skills and liable ‘
to make compensation to his principal in respect of the
direct consequences of his negligence, want of skill or
misconduct’

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 The Relationship between the
Principal and the Third Parties
• Like in Ordinary Agency, the Principal will
be liable to third parties for acts of his
agent.
• The third parties here will be persons
affected by the acts or omissions of an
agent
• The third parties, will turn into parties to
the contract after its conclusion.

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 Where the agent has no authority

• If the agent has no authority, the principal

cannot sue or be sued on the contract
unless he chooses to
• ratify it.
• If the agent, knowing that he has no authority,
makes a representation to the contrary and
causes loss to
• the third party, he may be liable for the tort of
deceit.
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 Where the agent has no
authority
• If he genuinely believes that he has authority, but
is in fact mistaken, he may nonetheless be liable
for breach of warranty of authority. This
applies not just to contracts but to any
business transaction
• where a party wrongly represents to the other
that he has authority from some other person,
thereby
• inducing the other party to enter into the contract.

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 THE RIGHTS OF AN AGENT
• The right to receive the agreed remuneration
or commission from the principal.
• The right to be indemnified for loss resulting
out of discharge of his duties (S.175 of LCA).
• The right of lien (S.171).
• The right to claim compensation for premature
revocation of authority (s.157 of the LCA).

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 The Rights of an Agent
• Right to retain goods, papers, and
other property of his principal until the
amount due to him for commission,
disbursement etc has been paid.
(s.173 of the LCA)

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 DUTIES OF AN AGENT
• Carry out the transaction, which he is employed
to carry out
• To obey instructions and to act strictly in
accordance with the terms of his authority
• To act with reasonable and proper skill
A broker will be held guilty of negligence if he expresses an unqualified opinion
on a point of law
The court said: “people occupying a profession position take it upon themselves
to give advice upon a matter directly connected with their own profession, then
they are responsible for seeing that they are equipped with a reasonable
degree of skill and reasonable stock of information so as to render it
reasonable and safe for them to give that particular piece of advice

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 Duties of an Agent
 To account to the principal for money
received
 To act honestly with the principal
 Not to jeopardise his principal’s interests
with his own or another principal
 Not to make a secret profit
 Not to accept bribes
 Not to delegate his authority
 Note: where the agent acts beyond the limits of
his powers; the insurer is not liable
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 Consequences of Breach of
Duty
• They forfeits all their rights against the
principal
• They are liable to the principal for all loss
resulting from the breach of duty
• They can be dismissed instantly
• They can be punished criminally

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 Rights and Powers of the
Principal
• to ratify or disown acts o an agent done on
his behalf but without his knowledge
(s.148 LCA)
• to revoke the agent’s power. (s.153 LCA)
• to claim compensation for loss sustained
or claim profits which are a results of the
acts of an agent acting against is
directions.(s.158 LCA)

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 Rights and Powers of the
Principal
• To claim compensation for loss arising due
to agent’s negligence, want of skill and
misconduct. (s.164 LCA)
• To repudiate transactions of an agent who
has no authority

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 DUTIES OF THE PRINCIPAL
• To pay remuneration to his agent
• To indemnify an agent against the consequences of all lawful
acts done by such agent in exercise of the authority conferred upon him
• To pay compensation in respect of injuries
caused to him by his principal’s neglect or want of skill

• The Principal is bound by contracts negotiated

by agents and sub-agents
• They can be liable for misrepresentations made,
or frauds committed by an agent acting in the course
of his business (s.188).

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 Termination of Agency
• Agency relationship can be terminated by
• Mutual Agreement
• Revocation of Authority by the Principal
• Renunciation of Agency by Agent
• By performance
• On death/insolvency/insanity/winding up
• Lapse of time
• Frustration
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 QUESTION(S)
• What are the disadvantages of employing
an agent?
• Is it fair for an agent to be held responsible
even for acts which he did not authorize or
which the agent exceeded his authority?
• What legal mechanism or self protection
can you invoke in order to avoid liability
resulting from agent’s misdeeds?

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Thank you for your Attention !

Ubi Jus, Ibi remedium

(Where there is a right, there is a remedy)

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