Law of Agency

Agent- principal relationship

 Agency Defined
 Agency is a contract whereby a person, the agent,
agrees with another person, the principal, to
represent him and to perform one or several
legally binding acts.
 Sources of Agency: Law and Contract.
 The principal must have the capacity to perform
juridical acts.
 Agency-principal relationship is created by an
express or implied agreement.
 Authority
 Express authority arises from written or oral
instructions by the principal. An agent may in
general be appointed orally.
 Exception- If the principal authorizes an agent to
enter into written contract on behalf of the
principal, the agents authority to do so must also
be in writing.
 An agent is impliedly authorized to do things
incidental to carrying out express instructions.
E.g. impliedly authorized to incur postal,
telephone, and travelling expenses.
 Duties of the Agent
 Duty to be Loyal- a principal places trust and
confidence in his agent and relies on the agent to act
solely for the principals benefit in all matters
connected with the agency.
 Greater trust & honesty is required from the agent-
must not reveal principal’s confidential information
 Should void conflict of interest
 Should act with the strictest good faith.
 Duties of the Agent (Cont’d)
 Must not act adversely to the principal’s interest.
 Must not deal with himself with out approval.
 Must not receive any secret benefit from a
transaction undertaken for the principal.
 Duty to Keep and Render Accounts
 Agent is obliged to keep accurate records of
receipts of money or property and account to the
principal.
 Duties of the Agent (Cont’d)
 Duty to Use care and Skill
 Agent must exercise utmost care and skill in
carrying out the agency.
 He is required to exercise the degree of care
and skill that a reasonable prudent person
would use in a similar situation.
 Degree of skill and diligence appropriate to the
performance is required from the agent.
 Duties of the Agent (Cont’d)
 Duty to Perform Service Personally
 As a rule, the agent is required to perform the
agency himself unless authorized by the
principal to appoint a substitute.
 A delegate can not delegate. Exception-
 when the interest of the principal so requires
 when unforeseen circumstances prevent him
from carrying out his agency and where he is
unable to inform the principal of these
circumstances.
 Duties of the Agent (Cont’d)
 The relationship between the principal and
the substituted agent shall be as if the
substituted agent received authority to act as
an agent directly from the principal, where the
substituted agent had reason to believe that the
agent was authorized to appoint a substitute.
 On the contrary, if the substitute agent did not
have such reasons, then rules concerning
unauthorized agent shall apply.
 Duties of the Agent (Cont’d)
 The agent shall be liable for the acts of any
person whom he appointed without
authorization as his substitute as if they were
his own.
 On the other hand, where the agent has been
authorized to appoint a substitute he shall be
liable only for the care with which he selected
his substitute and gave him instructions.
 Duties of the Principal
 Duty to pay Remuneration- Pay the agreed
commission or other remuneration
 If not agreed, the court, in accordance with custom
and usage, will fix the amount of remuneration.
 Duty to Reimburse
 The principal is obliged to advance sums
necessary to carry out the agency.
 The principal shall reimburse outlays and
expenses incurred by the agent in the proper
carrying out of the agency.
 Duties of the Principal (cont’d)
 However, the agent may not recover
disbursements made for illegal purposes or for
expenses incurred through negligence or fault.
 Duty to indemnify- the principal shall
compensate the agent for costs or expenses
incurred on behalf of him in accordance with the
terms of agency. The agent is entitled to indemnify
from the principal for losses and damage sustained
in executing authorized lawful act- loss must
result directly from the execution of an authority
granted- Lien right to exercise the right
 Liabilities of the Principal
 Liable to third parties for performance of
contract made in his name.
 The contract by the agent is a contract of the
principal just as though the principal himself
personally conducted.
 The principal, not the agent, is the contracting
party, entitled the benefits of the contract,
enforce its performance and perform in
accordance with the contract.
 Liabilities of the principal (Cont’d)
 But, acts performed by the agent in the name of the
principal beyond authority will not bind the
principal unless ratified.
 The principal is liable for any fraudulent acts of the
agent acting within the scope of his authority.
 The principal may seek invalidation of contract by
invoking defects in the consent of the agent.
 The principal may avoid contract if his agent gave
consent because of mistake, fraud or duress.
 Liabilities of the Agent
 Agent acting outside the scope his authority-
will be personally liable to 3rd parties unless the
principal ratified the act of the agent.
 The principal may ratify or repudiate the act of
the agent.
 If ratified- the agent shall be considered as acted
within the scope of his authority.
 If repudiated- the agent personally liable to 3rd
parties.
 Liabilities of the Agent (Cont’d)
 Liability of the agent for torts- liable for
tortious act whether acted within power or not.
 Tort is any civil wrong other than breach of
contract.
 Tort liability is based on conduct that is
socially unreasonable- an act may be both
crime and tort.
 Crime- offence against state; tort- civil wrong.
 Joint Liability of Principal and Agent
 Principal should give prompt notice to person
who did business with the agent or may have
known of the agency- if not will be liable.
 The principal failed to ask return of the
document evidencing power of agency and seek
judicial decision for revocation may be liable.
 The principal who caused third party (by
statement, behavior or failure to act) to believe
that the person with whom he was dealing was
acting on behalf of him will be liable.
 Termination of Agency
 Termination by:
 Revocation- principal may revoke agency- the
principal shall indemnify the agent for losses as
result of revocation, if any.
 Renunciation- agent may renounce agency
upon giving prompt notice- The agent shall
indemnify the principal losses as result of
renunciation.
 Incapacity of one of the parties- principal or
agent dies, becomes incapable or declared