Chapter 1: The Concept of Agency

1.1. Definition Of Agency

The Law of agency is in most cases defined as the relationship between
two persons, where one (the agent) may act on behalf of the other
(principal) and bind the principal by words and actions.
Agency law mainly focuses on the relations between principals and agents and third
parties with whom the agent deal within making contracts on the behalf of
principals.
Agency is a fiduciary relationship that results from the manifestation of consent by
one person to another that the other shall act on his/her behalf and subject to his/her
control and consent.
See Art.2199 of civil code.
Art.2199 defines agency as a contract to show that agency is a consensual
relationship.
According to art. 2199 an agency relationship exists when one party, called the
principal, authorized another person to act for him and when the other person agrees
to represent or act for the principal.
1.2 Theories and Historical Development of Agency

• Emerged around the 12th century (A.D) along with the slave and slave
owners relations.
• Since early times, slaves were considered as a mere chattel without
rights. It was logical to hold the owner legally liable for the acts of his
slave, especially if the acts of the slave were done based on the
direction of the slave owner.
• Hence this slave and slave owner relationship paved a way for the
creation and concept of representation. During this time the
responsibility of the principal for the acts of his agent or servant
commenced.
Theories of Agency in Common Law

• The theory of agency in the common law is founded on the doctrine of identity
of principal and agent, in which the theory is generally expressed in the phrase
“qui facit per altrum facit per se” (He who acts through another acts
himself).
• This theory failed to make distinctions between the relations of principal- agent
and third party. And the problem with this theory is the protection of third
parties who has transacted business with an agent who was not authorized to
transact that specific business.
• In regard to this problem the theory of identity adopts the maxim that the
unauthorized acts of the agent does not bind the principal.
• Due to commercial necessities some exceptions are provided in order to protect
the right of third party who acts in good faith while transacting with an agent.
• The theory of agency in the common law is classified in to three types
of agents, i.e., agents acting for a named principal, for unnamed
principal and for undisclosed principal.
• The major problem in agency contractual relation with regard to third
party is with whom the is the third part contracted? In order to solve
such problem the agency theory in the common law provides a
liability test for undisclosed agency. The liability test ascertains
whether the goods or documents of title come in to the possession of
the agent by the consent of their owner.
Agency Theory in the Civil Law

• The theory of agency in civil law is founded in the theory of separation.

• The internal contract that is made between the agent and the principal in regard to
the extent of authority the principal gives to the agent is in principle ineffective
with regard to third party. The third part does not bother about the contract of
mandate that exists between the principal and the agent.
• The problem from the perspective of third party is from whom does the third part
contracted?
• The civil law theory adopts a test to ascertain whether the agent acted in a
representative or personal capacity. i.e the name test.
• Accordingly, if an agent acted in a representative capacity, normally on the behalf
of the principal the agency is direct, but if the agent acted in his name for the
principal, the agency is indirect.
• According to the civil law theory of agency the direct agent is named as a
commercial agent and the indirect agent as a commission agent. While in
common law both of the representatives are referred as agents.
• In civil law an agent who acted in his name must disclose his intention of
contracting as an agent or situations must indicate. However, in the common
law, once an agent acted within the scope of his power even if the agent
acted in his own name for undisclosed principal a direct relationship is
created between the principal and third party.
• Common Principles:-
• If a direct agent acts within the scope of his power , privity of contract exists
only between the principal and third party.
1.2. Importance Of Agency
The following points are the need for having an agent
acting on behalf of someone.
I. The need to overcome time and space limitation.
II. The need to overcome limitations of knowledge and
skill.
III. The need to represent legal persons.
IV. The Need to overcome incapacities.
 1.4. Sources of authority
Juridical acts performed with in the scope of the authority granted will bind the
principal directly. That means the rights and obligations of the contracts are that of the
principal and the third party.
As provided under Art.2179 of the civil code, the authority to act on behalf of another
may derive from the law and the contract.
Accordingly the authority of an agent is the power of agency which the agent acquires
by the operation of the law or by a contract concluded between the agent and the
principal.
A. Authority derived from a contract
 most usual kind of agency.
Agency arising from bilateral agreements between the principal and the agent as
articulated under Art.2199 of the civil code. agency is a contract which formed between
the principal and agent.
Obviously under such agency relationship which arise out of a contract, we find
two independent contract. These are regards as:
1.Internal contract (subordinate contract)
2. External Contract (main contract)
1. Internal contract (subordinate contract)
Is a contract that exists between the principal and the agent. This contract
essentially concerned with the right and duties of such parties.
Internal relationship mainly created by contract although there are cases where it
could be created by the operation of the law to determine the respective duties and
rights of the parties.
2. External contract (main contract)
Is a contract that exists between the principal and a third party. It is concerned
with the rights, duties and liabilities that could be created as between a principal
and a third party through the intermediary of an agent.
For a direct relationship to be created between the principal and third parties, in
principle, the agent must have acted in the name and behalf of the principal within
the scope of his power. Once these elements are fulfilled, as regards the effect of the
contract, only the principal and third party remains to be parties to the contract
concluded.
Consequently the rules of ordinary contract which could operate between two
contracting parties will be applicable to the principal and the third party relationship.
Since the agency is one of the special types of contract and thus, the rules applicable
to formation of a valid contracts are of necessity applicable to the agency
relationship. Capacity of an agent is not specifically provided as a requirement. See
2182(1) & 2230(1)
B. Authority by judicial act
 a different kind of source of agency its authority granted by the court. That is, an
authority to act on behalf of another may emanate from the courts decision.
It arises by the order of the court up on application Art.2253-2256.
curator appointment is usually necessitated if principal is not in a position to
appoint an agent by reason of being a way, ill or any similar causes.(2255)
Only limited person can apply to the court(2254).
C. Authority derived from the law
Agency relationship could emanate from the operation of the law itself.
Happen when a person to be represented is not in a position to appoint his agent
for one thing or another. Due to the necessity to safe guard the interest of the
person to be represented.
The consent of the principal’s has no role in creating the agency relationship and
hence it is beyond the principals consent that agent principal relationship comes to
existence.
The internal relationship between representative and represented in this case is
legal and not contractual since it is created by the operation of the law.
E.g. tutor & commercial employee( secretary, sales mans)
Chapter two: Contractual Agency under Ethiopian
Law
2.1. Scope of authority
2.2. Authorities of an agent
2.3. Modes of representation
 2.1. Scope of authority
Once a contract of agency is formed, the parties to the contract of agency assume
the obligations arising from the terms of the contract and by such incidental
effects as are attached to the obligations concerned by custom, equity and good
faith having regard to the contract of agency.
The scope of the power assumed by the agent is determined by the contract giving rise
to agency.
The scope of the agency assumed by the agent might not be expressly determined by the
contract. In these situations it is determined by the nature of the transaction to which the
agency relates(Art.2202(1)). As per sub 2 of art.2202 the scope of power of the agent
may be general or special.
A. General agency
Depending on the scope of power conferred on the agent the authority one has received
may be general agency. In such type of agency the authority is conferred in general
terms.
Usually it is expressed in terms like, all my affairs, anything related to my property, any
affaires which I am called to perform.
The scope of authorities conferred in general terms is only limited to the
management of the said affairs. See Art.2203 &2204
A general agent is given the power to do a number of transactions involving a
continuity of service.
A person, conferred agency with general terms is only empowered to sustain
the rights of the principal and is not empowered to perform acts of disposing
the rights of the principal.
Those acts which are named acts of management under Art.2204 are:
• Acts done for the preservation of maintenance of property
• Leases for terms not exceeding three years
• The collection of debts
• The investment of income
• Discharge of debts
These acts are acts of management of a similar nature in terms of preserving the
right of the represented
Similarly, the sale of crops; the sale of goods intended to be sold and the sale of
perishable commodities and other similar acts are categorized as acts of
management. However, these are acts of disposition.
The purpose of conferring power to conduct these activities for an agent protects
the loss of the rights of person represented and hence these acts are acts of
management.
Special agency
It empowers the agent to dispose the rights of the person represented. This
authority is named as acts of disposition.
See Art.2202,2206 & 2205
In case of special agency the act to be performed by the agent is specifically
provided like sale of a house, lease of land etc.
Acts have to be specified in such a way that the agent and the principal have
priory agreed on what acts are to be performed.
Special agency confers upon the agent authority only to conduct the activities
specified by the agreement and their natural consequences according to the
nature of the activity and usage. (art. 2206(1))
Not only those acts listed but similar acts of disposition other than those of
acts of management require a special authority of the agent.
2.2. Authorities of an agent

It is the authority with in which the agent can act with effect of making the
principal liable with third parties.
Art.2206(2) any thing that agent does in excess of the authority will not
affect the principal either to benefit or making him liable unless he has
acknowledging the act done in accordance with doctrine of ratification.
Two varieties of authorities to act through another are actual or as it is some
times called real authority and apparent authority.
A. Actual authority
Is the authority which in fact the agent has been given by the principal under
the agreement or contract which has been made between them or by virtue of
subsequent ratification or by law.
Actual authority exists in two forms express and implied.
See Art2202(1)
Express authority is specifically created and limited by the terms of the agreement or
contract which give rise to agency relationship.
Implied authority is important for carrying out of the authority expressly granted. the
principal has consented.
The important feature to note here is that the consent of the principal is a necessary
part of implied authority because this authority is one aspect of the agent’s actual or
real authority.
B. Apparent authority
 it is not authority arising from the consent of the principal whether express or implied.
The authority here is the product of the principal conduct, his conduct shows the agent
is authorized to act on his behalf.
In this circumstance third parties assume that the agent has authority to act on behalf
of the principal.
 Apparent authority must be carefully distinguished from implied authority. Implied authority is
the authority which in fact the agent possesses as a result of the construction of contract of agency.
Apparent authority on the other hand is the authority which as a result of the operation of the legal
doctrine the agent considered possessing.
Art.2195 when the agent has acted with an apparent authority both the principal and the agent are
liable towards the third party with which the agent has acted.
1. Third party informed of the existence of authority by the principal but failed to inform
him of the partial or total revocation of such power.
 Third parties to whom the establishment of the authority is informed needs to be informed as to
the revocation of either the total or partial revocation of the authority.
2. Failure of the principal to demand for the return of the document evidencing agency.
When the power to act for another is evidenced by a written instrument the revocation of the
authority is not alone sufficient to terminate the relationship between the principal, the agent and
the third parties. This is because the agent even when his authorities are terminated conceptually
may act in the name of the principal supported by the written evidence unless this document is
returned to the principal.
See Art.2184 (document to be returned)
Art.2185 (loss of document)
3. Where the principal causes in certain manner for a third party to
believe the existence of the authority.
In this case there was no contract of agency between the agent and principal.
In case where the principal and the agent alone has made certain statements
or acts that give rise to third parties to believe that these two persons have
agency principal relationship among themselves.
A mere statement or act made by the individual in front of third parties
enabling the latter to believe that there is agency principal relationship legally
makes the principal liable with agent.
There is no apparent agency in Ethiopia law but the principal is liable towards
the third party with the agent to the occurrence or otherwise of one of the acts
under Art 2195 of the civil code.
 2.3 Modes of representation
There are different way by which agent may represent.
Ethiopia law acknowledge three modes of representation by which agent may represent
the principal.
1. Disclosed agency
The modes of representation in which the agent reveals the name of the principal to third
parties with which he is interacting, it is recognized under Art.2189(1)CC.
The name test is disclosing the name of the agent acting in the name of the principal is an
essential element of agency under Ethiopian law.
The third party enters into contract with the agent with full knowledge that the person with
who he/she is interacting is the agent and whose name as a contracting party stated is the
principal.
2. Partially disclosed agency
In this case the agent represented the principal on the principal behalf but in the name of
himself. In this case third party may not know the fact that the person with whom he is
interacting is an agent or a third party may believe that the contract is made between third
party and the owner of the affair himself.
Art.2197(1): this article entitled the “agent on his behalf” have a
problem because if the agent act on his own behalf there is nothing
called agency. agency is acting on behalf of another(the principal).the
Amharic version also use the term “name” in place of “behalf”.
The agent doesn’t disclose the name of the principal but discloses that he
is making a contract on behalf of a principal, and the third party is also
aware that there is a person behind the scene whose name is not
disclosed.
The effect of agency in this case is, it does not affect the principal but the
agent himself shall enjoy the rights and incur the liabilities arising out of
transactions.
3.Undisclosed agency

The agent acts on his own name and he is acting on his own behalf.
Art.2197(1) the last provision that is”… notwithstanding that such third
parties know that he is an agent. This provision tells us there are also
circumstances third party did not know as front person is agent.”
Partially disclosed and undisclosed agency does not bring any effect of
agency, yet the person who acts in his own name and on his own behalf shall
enjoy the benefits or liabilities himself.
Only disclosed agency which is termed as complete agency under Art.2189
of the civil code shall bring effects of agency.
 the other two form of agency explained under Art.2197 of CC are not
capable of affecting the principal and hence bring the effects of agency.
Unauthorized Agency and Ratification

1. Unauthorized Agency or Agency of Necessity

Incase the principal has some manageable interest but fails to manage,
some other person may undertake activities bearing legal effect
pertaining to the principal to avoid the lose the later may encounter.
Such kind of agency is referred as agency of necessity or unauthorized
agency.
• See arts. 2257, 2265
• This kind of relationship arises when a person has no authority to act
for another person, undertakes with full knowledge of the facts to
manage this persons affairs without securing prior authorization.
• The following conditions needs to be fulfilled for a valid unauthorized
agency relationship;
1. What is done by unauthorized agent is to be reasonably necessary.
2. The principal must not have consented to the management of his/her
affair by the acting person.
3. The acting person must have known that he has no authority to do so
and yet undertake, with full knowledge of the facts, to act on behalf
of the principal.
4. The agent must act to the benefit of the principal.
5. The agent must act in good faith.
Ratification

• There are instances where agent may act on behalf of a principal without authority,
exceeding his authority or with a lapsed authority. In such cases no agency principal
relationship created. The person on whose behalf the agent acts, has the option to
accept or repudiate the unauthorized act. The acceptance or adoption of the
unauthorized act is called ratification.
• See art. 2192
• There are circumstances where the principal may be forced to ratify unauthorized
acts.
• See art 2207
• The individual on whose behalf the unauthorized dealing was made must be capable
of entering in to juridical acts at the time the unauthorized act was committed.
• See art. 2190, 2191& 2192
Chapter 3:Effects of agency
 3.1 Establishing a relationship between the
principal and the third party.
The effects of agency is spelt out under Art.2189 of the CC.
The effects of agency is to develop a relationship between the principal and the third
party as though the contract was conducted between the principal and the third party.
This effect of agency shall come out upon the fulfillment of two conditions the name
test and the scope.
For the establishment of a relationship between the principal and the third party there
are mandatory requirement the agent must act in the name of the principal and with
in the scope of the power granted. These two elements are cumulative.
The non-fulfillment of either or both is a barrier to establish the link between the
principal and the third party.
Effects of the non-fulfillment of either or both of the requirements.
Art.2197 where the agent acts in his own name either on his own behalf or on behalf
of the principal, it is only the agent that is liable to the third party.
 By virtue of art.2189(1) the fact that the agent disclose the name of the principal
while interacting with third parties makes the principal liable to third parties as if it
was made by the principal himself.
In situations where the name test is not fulfilled third parties shall have no direct
action against the principal and may only exercises against him on behalf of the
agent, the rights pertaining to the agent.
The third party can only ask performance from the agent or third party may
demand the principal in place of the agent only if the agent has a right against the
principal by way of subrogation. E.g. if the agent have remuneration.
The principal, however, is entitled to demand the recovery of the goods collected
on his behalf from the agent or from third party. There are two condition attached to
this right.(Art.2198.)
These are good faith of the third party and the fact that the principal has to
discharge his duties towards the agent. When the principal has fulfilled this
conditions he can get the goods possessed by the agent or third party while the
agent acting on behalf of the principal.
The second element that needs to be fulfilled is whether the agent has acted within
the scope of his authority.
According to Art.2181 the scope may be determined from the contract giving rise to
agency relationship. But where the scope of agency is not expressly fixed in the
contract, such scope shall be fixed according to the nature of the transaction to
which it relates. (art 2202(1))
What if the agent act beyond the scope of the power granted?
To act beyond power may come from the agent acting with lapsed power or power
abused(2190).
Lapsed power means a time limit for a power of authority. There was a power to act
on behalf of another but come to an end.
Power abused means there is existence of power but the agent has acted beyond the
limit of the power granted.
In both cases the principal has no liability towards the third party.
Then it is the power of the principal to ratify or repudiate the acts done outside the
scope of power(Art.2190).
Once the principal has ratified it, the agent shall be deemed to have acted with in
the scope of his power. Hence ratification has a retrospective effect.(2192)
But where the principal has opted for rejecting the act of the agent that act is
called repudiation and the effect is invalidation of the contract formed between the
agent and third party
See Art.2193 &2194.
The agent shall be liable where the agent has acted in a lapsed power of authority
while the third party in good faith was not aware of this fact.
But where the agent is not aware of the fact that his power was either reduced or
come to an end, the agent shall not be liable but the principal. (art 2194)
The principal may exclude himself from liability by showing awareness of the
third party about the limits of authority of the agent. (art.2196(1)
The agent shall not be liable to pay compensation to the third party where he can
replace the principal and carryout the obligations assumed unless personal
qualification of the principal is not required. (art. 2196(2))
• In case where both the name test and acting within the scope of power are
fulfilled, it is the case of complete agency. (art. 2189(1)
• Once the agent has acted in accordance to the requirements of Art. 2189(1)
the principal can enjoy all the rights as if he was the partly who conclude
the contract he may replace the agent and demand the invalidation or
otherwise of the contract formed between the agent and third partly.
• In contract law Art 1808(1) provides that in the case of contracting partly it
is the partly that alleges to have suffered the defects that can be demand
invalidation but Art. 2189(2) is an exception it empower another person or
additional principal to invalidate a contract affected by the defective
consent.
Art. 2189(2) is an exception or a special provision to Art. 1808(1).
For object and from Art. 1808(2) provides any interested person can seek
invalidation when object and form is affected that is why Art. 2189(2) is silent.
Art 2189(3) is an exception or special provision to Art 1704- when the fraud is
committed by an agent, without any condition being attached to it the third partly
can invalidate the contract.
3.2 Obligations of Agency
As a relationship, agency imposes obligations among the parties involved in the
relationship. The obligations are dependent on the agreements made, the law and
such incidental effects as are attached to the obligations concerned by custom,
equity and good faith. (art.1713)
Duties and rights are corelative and hence duties of an agent are the rights of the
principal and duties of the principal are the rights of the agent.
Obligations of the Agent
• Duties of the agent to a contract of agency arise either from agreement
(express or implied) or from law.
• Performance:
• where the agency is contractual the agent is bound to perform what he has
undertaken to perform.
• Failure of the agent to carryout his obligations as agreed is non
performance and results in the liability of the agent towards the principal.
Duty to protect the rights of the principal from Conflicting Interests
• The interest of the principal is the material interest valued in terms of his
benefit.
• The agent shall represent the principal only for his (the principal’s)
benefit.
• If the agent is going to benefit out of the transaction he/she makes on
behalf of the principal without the knowledge of the principal that may
result in a conflicting interest.
• Conflict of interests may be expressed in three forms. These are:
• 1. when the agent contracts with third parties
• 2. when the agent contracts with another principal
• 3. when the agent contracts with himself
1. Contract with third parties

• Happens when the agent concludes a contract with persons to whom he draws a benefit.
• See art 2187(1)
• The effect of a contract made by the agent in conflict with the interest of the principal is
cancellation by the request of the principal.
• The principal, entitled to cancel the contract is bound to prove the fact that the third
party is aware of the conflict or that the third party should have known of the conflict.
• The right of the principal for requesting a cancellation of a contract is limited by time.
(art. 2187(2)
• Even when the principal has made his intention known to the third party to declare the
cancellation, the third party has the right to sustain the contract by making the
difference good within two months having been informed by the principal to cancel the
contract. Art 2187(3)
2. Contracting with oneself
• Explained in two ways: the agent acting in his behalf or acting on
behalf of another principal.
• In these cases the principal can without proving either the conflict or
the knowledge of the agent declare cancellation.
• The agent may sustain the relationship by making the difference good.
But the burden to prove that there is no conflict of interest rests on the
agent.
• The presumption that a contract concluded by the agent on his behalf
or on behalf of another third party is rebuttable upon the agent being a
commission or a forwarding agent. (art. 2188)
Good faith required of the agent

• See art. 2208(1)

• Good faith is a requirement attached to the fiduciary nature of agency relationship.
• Acting towards the best interest of the principal.
• Fidelity is the best policy of good faith and hence agency. When the agent is in a
position in which his own interest may affect the performance of his duties to the
principal, the agent is obliged to make a full disclosure of all the material facts so
that the principal with such full knowledge can choose whether to consent to the
agents acting.
• See art. 2209
• The principal is empowered to revoke the authority at his discretion where he has
just motive. (arts. 2226 & 2227)
Diligence required from an Agent

• An agent must perform the undertaking with due care and skill.
• All agent owe duty of care to their principals. A distinction is made
however on the standard of care to be observed by a gratuitous agent
and that of a paid agent.
• See art. 2211,2212
• An agent either for consideration or gratuitous has to be careful with
whom he is making a contract in terms of the economic/business well
being of the third party. The effect of this is the agent is liable to the
principal for the performance of the obligation as a guarantor.
Duty to account

• The agent is bound to account for money and activities/management of the affairs to
the interest of the principal. See art. 2210
• The agent must pay over to his principal all money received to the use of his principal.
This duty exists even if there is adverse claim to the money by someone else including
the agent.
• The obligation to account exists even if the transaction in respect of which the money
received by the agent on behalf of the principal was illegal.
• See arts. 2213 &2214
Duty of non delegation
• As a principle an agent must perform his undertaking personally.
• Two exceptions to the principle a delegate can not appoint a delegate. (Art 2215) These
are:
1. When the principal authorizes the agent to appoint a sub agent. This could be made
either at the time of making of the contract or at a later time.
2. Authorized by the law: when there is no difference whether the act is done by the
agent himself or by a third person and this is implied from usage of the place of
performance; or where the agent is unable to perform the order himself because of
unforeseen circumstances and the latter is unable to inform this case to the principal.
• The agent is liable for the acts of a sub agent he has appointed without authorization.
(art 2216(1) But where the agent has appointed upon one or more of the exceptional
cases the agent is liable “only for the care with which he selected his substitute and
gave him instructions”.
• The relationship between the principal and the sub agent is either as if these persons
have a prior agreement or as in case of unauthorized agent. Art. 2217
Duties of the Principal

A. Remuneration
The duty of the principal to remunerate the agent for services rendered.
See art. 2219 & 2220
B. Duty to advance Money
The duty of the principal to advance money so that the agent can carryout his
undertaking. Art. 2221
C. Duty to Reimburse outlays and expenses
The money advanced by the principal may not be sufficient or the principal
might not have advanced money for the agent. In such cases the agent may
employ his own money or money from other persons. In such cases the principal
has a duty to reimburse outlays or expenses incurred by the agent. Art. 2221
D. Duty to release the agent from liabilities and Damages
• This duty may be expressly provided in the contract of agency.
• See art. 2222
E. Set- off conditional to the principal
The principal cannot raise the defense of set-off because of the fact that the transaction
is unsuccessful unless the agent commits a default in the performance of the transaction.
Art. 2223
F. Agent’s Lien Right
If the principal has not discharged his obligation to pay remuneration, expense, damage
or liability payments and if the agent is in possession of goods belonging to the
principal, then the agent is entitled to exercise a lien on such goods and retain possession
until the principal satisfy the agent’s claim. Art 2224
But this right do not work for documents evidencing power of agency. Art. 2184