Business law Review Example

The law of agency in Kenya is basically that of the English Common Law. It deals with the relationships that arise when one person, the agent, is used by another, the principal, to perform certain tasks on his behalf. CREATION OF THE AGENCY RELATIONSHIP Agency may be created in four ways namely, i. By contract ii. By Ratification iii. By Estoppel iv. By operation of the law Agency by Contract This may either be by express contract which requires no special formality and may be oral or in writing or it may be implied contract of agency.

In the latter case, there is no express contract but only a set of circumstances arid-conduct of the parties which necessitate the implication of an agency relationship. Agency by Ratification Under ratification what the agent does on behalf of the principal is done at the same when the agency relationship is non-existent. Later, however the principal on whose behalf though without whose authority, the agent has acted accepts the agents acts and adopts it just as if there had been the principal's prior authorization. Three conditions must be fulfilled to constitute a valid ratification namely; i.

The agent whose act is sought to be ratified must have claimed to act for the principal; ii. At the time of action the agent must have had a competent principal; iii. At the time of ratification the principal must be legally capable of doing the act in question himself. Agency by Estoppel 1 Estoppel when applied to agency means that a person who by words or conduct has allowed another to appear to the outside world to be his agent with the result that third parties deal with him as his agent cannot afterwards refuse to accept or acknowledge this apparent agency if to do so would cause injury to third parties.

There are basically three legal requirements for the application of estoppel. First, there must be a representation either through a. statement or conduct on the part of the principal to the effect that the agent has authority to act on his behalf. Secondly, there must be a reliance on that representation by a third party-and finally, the third party must change his position as a result of that reliance. Agency by operation of the Law There are two situations here namely, agency of necessity and agency arising from cohabitation.

Under agency of necessity there are certain accepted instances of historical origin under English Law where the law creates a relationship of principal and agent irrespective of the agreement of the parties. The most notable examples are those of a master of a ship and a deserted wife. In the former case if the cargo or the ship is threatened with perishing in an emergency and the master cannot communicate with the owners of the ship or the cargo he may sell or pledge the ship and or cargo and his acts although unauthorised will bind the owners, his principals.

In the latter case a deserted wife, so long as the husband's conduct is wrongful, has the right to pledge her husband's credit for necessaries. Under agency arising out of cohabitation, the relationship of principal and agent exists between husband and wife as long as they are living together. The wife is presumed to have the husband's authority to pledge his credit for the purpose of purchase of necessaries. Similarly there is the agency of a mistress wherein as long as there is cohabitation between a man and a woman in circumstances in which the outside world is allowed to think that they are husband and wife, the woman will be in the same position as a wife to pledge the man's credit for purposes of the purchase of necessaries..

2 THE SCOPE OF THE AGENCY RELATIONSHIP By scope of the agency relationship is meant the exact nature and extent of the power which is possessed by the agent and it is explained in terms of the artificial notion of law as the agent's authority. Because of the different types of situations in which agency relationships arises there are various categories of authority namely: 1) Actual or real priority 2) Apparent authority 3) Presumed authority Actual or Real Authority This refers to the authority which the agent has in fact been given by the principal under a contract or agreement made between them.

It may be subdivided into three categories namely, express, implied, usual or customary authority. Under express authority the agents authority may be specifically created and limited by the terms of the agreement or contract which gives rise to the agency relationship and it may be contained in a deed (power of attorney) or in oral or written authorization.

Secondly, the agents authority may be implied from the nature of the business which he is employed to transact. Generally, every agent has implied authority to do everything necessary for, and ordinarily incidental to the carrying out of his express authority according to the usual way in which such authority is executed. Usual authority is that which an agent in the trade, business, profession or place in which the particular agent is employed would normally or customarily possess, unless expressly stated to the contrary by the principal. It is based upon the settled trade, business or professional usages and customs.

Finally, under customary authority, where an agent is employed to act for his principal in a certain place, market or business then he is impliedly authorised to act according to the usages and customs of such place, market or business. 3.

Apparent Authority This is an authority which an agent has not been given by the principal but which the law regards the agent as possessing despite the principal's lack of consent to his exercising such authority. This is because the principal by his conduct has allowed the agent to appear to have authority, or to have a greater authority than was in fact given to him. It arises as a result of the operation of the legal doctrine of estoppel where it must be shown that the principal's conduct was such as to mislead third parties and to induce them to rely upon the existence of the agency to their detriment.

In this situation the agent will bind the principal by what he does. Presumed Authority This type of authority depends upon what the law presumes the principal would have agreed to the agent's doing had he been free to give instructions to the agent. It is therefore created by the law and does not depend upon any express or implied consent from the principal nor does it result from the principals representations. The authority arises in situations of necessity, deserted wife and agency of a wife or mistress. THE OBLIGATION OFTHE AGENCY RELATIONSHIP The Duties of the Agent.

There are two types of duties of the agent viz; i. Those arising from agreement which may be express or implied duties; and ii. Those that arise from the fiduciary nature of the agency relationship. Express duties are stipulated in the contract and any acts done outside the scope of the powers conferred will not bind the principal. iii. Implied duties include; the duty to perform what he has contractually undertaken to perform. As regards the duty of obedience, the agent must act in accordance with, the authority given by the principal expressly implied, or customarily.

The agent in the performance of his duties must exercise due care and skill, the 4 standard of care being that which an agent in his position would usually possess and exercise. The agent should not delegate his duties to a sub-agent unless the law or by contract or by contract or the nature of the business makes it inevitable. The agent must respect the principals title to goods, money or land possessed by the agent on behalf of the principal. iv.

The agent has a duty to account for all monies paid to the use of The second category of duties of the agent are those arising from the fiduciary nature of the relationship. These duties are equitable in nature arise from the fact that the agency relationship is one of trust and Firstly, there is a duty of fidelity. Where the agent is in a position in which his own interest may affect the performance of his duty to the principal, the agent is obliged to make all the material and therefore, important and relevant circumstances known so that the principal, with such full knowledge can then choose whether to consent to the agents acting or not. Failure to do this may lead the principal to set aside the transaction and claim from the agent any profit obtained.

The agent may not use information acquired in the course of his employment for his personal benefit. The agent must also not make secret profits out of the agency relationship. Secret profit refers to any financial advantage which the agent receives over and above what he is entitled to receive from the principal as commission. If he does so the principal can repudiate the contract of agency. The Principal’s duties The Principal' duties are basically two; namely, that of remuneration and secondly, that of indemnity. The principal must pay the agent remuneration or commission.

This is either express or implied in the agency contract. Secondly, the principal is under a duty to indemnify or compensate his agent against losses, liabilities and the costs incurred in the performance of the undertaking. REMEDIES As far as the principal is concerned three remedies are available to him against the agent. First, he can dismiss the agent for misconduct or if the agent is guilty of breach of any of 5 the duties for which he was employed to perform, and the agent then loses his right to be paid. Secondly the principal can sue the agent for breach of any of the duties and seek damages for breach of contract or in tort for damages for negligence.

Again the principal can sue under conversion where the agent has failed to hand over property; can sue for agent to account for secret profits received and, where the property of the principal has '' become mixed with that of the agent, tracing in equity. Thirdly, the principal can institute criminal proceedings if the agents conduct amounts to a criminal offence such as bribery or misappropriation of funds. On the part of the agent, he has a right of action for damages for breach of contract if the agent earns his commission and is not paid.

The agent can also enforce his right to be indemnified for expenses incurred by action. Secondly, if the principal sues the agent for breach of any of the duties, the agent can counter-claim or set-off such claim or the amount due to him as remuneration or indemnity. If the set-off or counter-claim is proved, the principal loses the suit and pays the balance, if any. Thirdly, if the agent lawfully has goods that he is supposed to pass to the principal and the principal fails to pay his commission, the agent has a right of lien over property. EFFECTS OF AGENCY Contracts by Agents.

For purposes of determining the rights and liabilities of the parties where an agent has contracted on behalf of a principal, a distinction is made between two kinds of principal, the disclosed and the undisclosed principal. The disclosed principal category includes the named principal, that is one whose name has been revealed to the third party by the agent and the third party thus knows that the agent is contracting on behalf of a particular principal; and the unnamed principal, that is one whose existence, but not identity or name, has been revealed to the third party.

The undisclosed principal is one whose identity has not been given to the third party and the fact that the agent is acting on behalf 6 of the principal is not revealed to the third party. The third party thus thinks that he is contracting personally with the agent. Where the agent contracts as agent for a named principal he incurs neither rights nor liabilities under the contract except in certain cases. These, are first, where he executes a deed in his own name wherein he is liable on the deed; second, where he is in fact the principal but contracts as agent; thirdly where he signs a bill of exchange in his own name and finally, where the custom of a trade makes the agent liable.

Where the agent contracts as agent for an unnamed principal he is not personally liable on the contract. However if he does not on the face of the contract indicate that he is merely an agent, he will be liable and the third party may elect to sue either him or the principal. In cases where the agent contracts as agent for an undisclosed principal, the latter can step in and sue the third party and hence can be personally liable to the third party. If the third party discovers the principal he may choose to sue either the agent or the principal.

These rights of the undisclosed principal to intervene and of the third party to elect are not available firstly, if their exercise goes against the terms of the contract between the third party and the agent and secondly, if the agent was unauthorised or exceeded his authority. TERMINATION OF AGENCY There are two ways in which an agency relationship may be brought to an end namely: by act of the parties; and, by operation of the law. The parties to the agency relationship can terminate it by agreement between themselves to discharge that relationship or by the withdrawal of either party from the original agreement by notice of revocation of the agency in the case of a principal or notice of renunciation of the agency by the agent.

The above general rules are subject to some qualifications. First, where the purpose of the agency is to secure beneficial interest in favour of the agent which the principal owes the agent, the principal cannot revoke the agency. Secondly, where the agent has incurred 7 personal liability as a result of acting for the principal within the scope of his authority the principal cannot revoke the agency so as to escape liability to indemnify the agent.

Thirdly, the agent will be indemnified or be given commission for what he has already done or earned before revocation. Termination by operation of the law, may occur in the following i. Once the transaction which the agent has undertaken to perform is completed, the agency automatically terminates. ii. If the period for which it was created comes to an end, the agency relationship ceases. iii. If the subject matter of the agency is destroyed or otherwise ceases to exist the agency is terminated iv. If the agent or principal dies, becomes insane or goes bankrupt the relationship is terminated.

The foregoing rules on termination apply to agency created by act of parties. In agency created by operation of the law the following rules apply; i. An agency of necessity terminates once the necessity which brought it into existence ceases. ii. In the case of a deserted wife, her right to pledge her husband’s credit ends if she obtains sufficient means from him or elsewhere or if she is guilty of adultery unless the husband allows, overlooks or forgives the adultery. iii. Agency arising from cohabitation or that of a mistress ceases to exist when the parties stop cohabiting. PREPARED BY SAMSON A. MAINYE B. A. M. A. LL. B, LL. M, D. P. M 8.