TOPIC 7

AGENY

Meaning

“An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such is done, or who is represented, is called the principal”. The contract which creates the relationship of ‘principal’ and ‘agency’ is called an ‘agency’ thus where A appoints B to buy ten bugs of sugar on his behalf, A is the

‘principal and B is the ‘agency’ and the contract between the two is the ‘agency if, pursuance of the contract of agency, the ‘agent’ purchase the bags of sugar from C, a wholesale dealer are brought into direct contractual relations.

Under a contract of agency the agent is authorized to establish privity of contract between the principal ( his employer ) and a third party. As such as the function of a third parties. In a way,

Therefore an agent is merely a connecting link. After entering into a contract on behalf of the principal with third party, the agent drops out and ceases to be a party to the contract and the contract bind the principal and the third party as if they have made it themselves

Characteristics of agency

1.    The agent performs a service for the principal

2.    The agent represents the principal

3.    Acts of the agent affects the legal position of the principal the agency relationship differs from trusts and bailment.

TYPES OF AGENTS

1.    General Agent: He is an agent engaged to perform a particular task or transaction on behalf of the principal in the ordinary course of his business, trade or profession as an agent.

2.    Special Agent: This is an agent whose authority is restricted to the performance of a particular act not being in the ordinary course of his business, trade or profession.

Both types derive their authority from the terms of appointment.

Specific Agents:

a)    Broker: This is a mercantile agent who has neither possession of goods nor documents of title but who is engaged to make bargains or contracts. He is described as a mere negotiator.

b)    Factor: This is a mercantile agent who is entrusted with possession and sells the goods in his own name.

c)    Auctioneer: This is a mercantile agent who is licensed by the state to sell goods and other property by public auction. He may or may not be entrusted with possession but is an agent of both parties.

d)    Del Credere agent: This is a mercantile agent who in return for an extra commission known as commission del credere, guarantees solvency of a 3rd party with whom the principal contracts. He undertakes to indemnify the principal if the 3rd Party fails to pay the amount due on the contract. A del credere agency is a contract of indemnity. The agent may or may not be entitled with possession or documents of title.

e)    Ship Captain or Master: This is a mercantile agent with powers over a ship and its cargo and in case of necessity becomes an agent of necessity.

DISTINGUISHING AGENCY FROM TRUST AND BAILMENT

TRUST

This is an equitable relationship whereby a party known as trustee expressly, impliedly or constructively holds property on behalf of another as beneficiary.

It is similar to agency in that:

1.    Some of the duties of the trustee are similar to those of the agent e.g must act in good faith and avoid conflict of interest.

2.    Some of the remedies available to the beneficiary against the trustee are available to the principal against the agent e.g account

However, they differ in that:

1.    Whereas most agencies are contractual, trusts are not

2.    Whereas the principal’s action against the agent for fraud is limited by the Statute of Limitation, an action by the beneficiary against the trustee has no time limitation.

BAILMENT

This is a contract whereby a party known as bailor delivers goods to another known as bailee with specific instructions that the goods be dealt with in a particular manner or be returned as soon as the purpose for which they were bailed is accomplished.

Bailment includes:

1.    Deposit or storage for safe storage

2.    Contract of hiring

3.    Pledge

4.    Contract for work or repair

5.    Carriage of goods

It differs from agency in that:

1.    The bailee does not represent the bailor

2.    Acts of the bailee do not affect the legal position of the bailor

CREATION OF AGENCY

Once an agency relationship is created, an agent comes into existence .An agency relationship may come into existence in the following ways;

1.    By agreement, contract or appointment

2.    By ratification

3.    By estoppel

4.    By necessity

5.    By presumption or from cohabitation

1.    AGENCY BY AGREEMENT

This agency arises when parties mutually agree to create it. Their minds must be at ad idem and both parties must have the requisite capacity .The purpose of the relationship must be legal.

As a general rule, no formalities must be complied with however, an agent appointed for the purpose of signing documents in the principal’s absence must be appointed by a deed known as the Power Of Attorney

The contract of agency may be express or implied from the conduct of the parties.

2.    AGENCY BY RATIFICATION

Ratification - This is the adoption or confirmation by a party of a contract previously entered Into by another purporting to do so on his behalf.

Agency by ratification arises after the “agent” has acted. It comes into existence when the person on whose behalf the agent purported to act and without whose authority he acted adopts the transaction as if there had been prior authorization .By ratifying the transaction the agents authority is backdated to the date of the transaction.

Ratification by the principal;

1.    Creates the agency relationship

2.    Validates the transaction entered into by the agent 3. Relieves the agent from any personal liability.

The principal of ratification of agency was applied in the case of Bolton Partners v.

Lambert. However, for agency by ratification to arise, the following conditions are necessary:

1.    The agent must have purported to act for a principal.

2.    The agent must have had a competent principal i.e. there was a natural or juristic person who could have become the principal

3.    The principal must have had capacity to enter into the transaction when the agent did as well as when he ratified it

4.    The transaction entered into by the agent must be capable of ratification i.e. it must not have been illegal or void

5.    The principal must ratify the transaction within a reasonable time.

6.    The principal must have been aware of the material facts affecting the transaction 7. The principal must ratify the contract in it’s entirely.

3. AGENCY BY ESTOPPEL

This agency is created by the equitable doctrine of estoppel. It arises where a party by word or conduct represents other 3rd parties as his agent and the 3rd parties deal with the agent .The other party is estoppel from denying the apparent agency. Agency by estoppel arises in circumstances: -

1.    Where the parties have no relationship but one of them represents the other as agent and 3rd parties rely upon the representation.

2.    Where an agency relationship exists between the parties but the principal represents the agent as having more authority.

Requirements for Agency by Estoppel

The conditions necessary were laid down in Ramas Case must exist: - 1.         A representation by word or conduct intended to be acted upon

2.             Reliance upon the representation by the representee

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

4.             It would be unfair not to estop the representor

In Freeman and Lockyer v. Backhurst Park Ltd the Articles of Association of the defendant company created the position of Managing Director but at the material time, none had been appointed. However one director with knowledge of the others purported to act as Managing Director, he engaged in the plaintiff firm to work for the company. However, the company refused to pay for the services rendered and the firm sued. The company argued that it was not liable as the director was not its Managing Director and hence had no authority to contract on its behalf. It was held that the company was liable as it had represented this director as its Managing Director and 3rd parties replied upon the representation. It was estopped from denying his apparent authority.

4. AGENCY OF NECESSITY

This is a category of agency created by law in circumstances of necessity where one party is deemed to have acted as an agent of another.

Agency of necessity arises in 2 circumstances namely:

a)    Commercial.

b)    Domestic.

1. Commercial Agency of Necessity

According to Lord Simon in China Pacific case, commercial agency arises where a party is in possession of another’s goods whether perishable or not and an emergency arises requiring immediate action in relation to the goods and it is impossible for the party in possession to seek instruction from the other.

This was also the case in Couturier v Hastie.  

The party must therefore act in good faith as owner. For the agency to arise, these conditions are necessary:

1.    There must be a genuine emergency necessitating action in relation to the goods.

2.    It is impossible for the party in possession to seek instructions from the owner.

3.    The party in possession must act in good faith for the benefit of the other party.

4.    Domestic Agency of Necessity

At Common Law a deserted wife is regarded as an agent of necessity with authority to pledge her husband’s credit for necessaries.

For the agency to arise, the following conditions are necessary:

1.    The wife must have been deserted by the husband.

2.    She must be free from blame. 3. Her authority is restricted to pledging her husband’s credit for necessaries.

What are “necessaries” is a question of fact and varies from case to case. In Nanyuki

General Stores v. Patterson, the appellant had sold goods to Mrs Patterson valued at Kshs. 3552. She had pledged Mr. Patterson’s credit who at the time was in prison. The appellant sued

Mrs. Patterson for the sum alleging that she had not contracted with her as an agent since:

a.     Her husband was in prison.

b.    Some of the goods (groceries and liqour) were not necessaries.

However the Court of Appeal held that she had contracted as an agent as she was married and the goods were necessaries.

5. AGENCY BY PRESUMPTION OR COHABITATION

This is another category of agency presumed by law. It is presumed where a man and woman are living together in circumstances which portray them as husband and wife, the woman is presumed to be an agent and can pledge the man’s credit for necessaries. Marriage is not essential for the agency to arise.

However, the following conditions are necessary:

1.    Cohabitation: The two persons must be living together as husband and wife. It was so held in Jolly v. Rees.

2.    Domestic establishment: The persons living together in a domestic establishment in the presumption of agency to arise. In Debenham v. Mennon where the parties were cohabiting in a hotel, it was held that the presumption of agency could not arise and the woman was liable.

3.    Necessaries: The woman’s authority is restricted to pledging a man’s credit for necessaries.

The agency does not arise if:

1.    The woman contracts personally.

2.    The man has expressly/implicitly instructed the woman not to pledge his credit

3.    The goods pledged are not necessaries

4.    The parties have stopped cohabiting by divorce.

5.    The parties have separated by mutual agreement and the woman is provided for.

6.    The trades’ people extend credit to her personally.

7.    She’s prohibited from pledging credit.

RIGHTS AND DUTIES OF THE PARTIES

Duties of the agent

1.    Performance: The agent must perform his obligation if the agency is contractual. He is not bound to perform if the agency is not created by agreement or where the undertaking is illegal or void.

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