Agency notes

Law of Agency

  • Meaning of laws of agency
  • Parties to a contract of agency
  • Types of agents
  • Methods through which agency can be created
  • Right and duties of parties to an agency contract
  • Ways through which agency may be discharged



Law of agency is one of branches of law of contract.  A person is employed by another to act on his behalf thus creating a Contract of Agency

Parties in agency contract

The parties to contract of agency are the Principal and the Agent. The principal is the person for whom the act is done on his behalf. The agent is the person employed by to do an act or to represent the other in dealings with third party.

Contract of agency

Contract of agency is contract between the principal and the agent.  The agent is authorized to establish privity of contract between the principal and the third party. The agent should bring about the contractual relations between the principal and the third party. He is a connecting link after he connects them he drops out.

Classes of agents

  • Agent can be classified as follows;
  • To the extent of their authority.

These are;

  1. A general agent is who is employed to do all acts with a particular business or employed e.g. firm manager. He can bind by doing anything which falls within the ordinary scope of business whether authorized  or not provided the third party acts bona fide Third parties  may assume that each agent has power to do all that which is usual for a general to do in the business.
  2. Special agent

Is one who is employed to do some particular transactions sell a motor vehicle. As soon as the act is performed the authority of such an agency comes to an end. If he does anything outside his authority the principal is not bound. The third party entitled to assume that the agent has unlimited powers. The third party should make inquiries the extent of authority of the agent before entering into contract.

  1. Universal agent

Is one who is found to be one whose authority is unlimited. He is authorized to do all acts which the principal can lawfully. He enjoys extensive power to transact every kind of business on behalf of his principal. This type of agency is very rare.

  • According to the nature of work performed by them.

These are;

Brokers; he is a person who represents buyer and a seller in negotiating the purchase or sale without physically handling the goods involved. He is only concerned in bargaining for the price and bringing the parties together. He receives a commission or brokerage fees for his services. Each broker specializes on particular kinds of goods.

Factors;  is a person who sells goods s in his possession and under his control on behalf of his principal. Factor posses the goods he sells in his own name receive payment and gives valid receipts. He may give credit to reasonable extent and pledge goods . Has a general lien on goods in his possession for all charges and expenses incurred by him

Commission agent; Is a person who is employed to buy or sell goods for the principle at the best possible price He gets commission as his remuneration. They are usually employed by foreign merchants. The main business is to receive order from foreign buyer to buy local from manufacturers and traders. They act in there own name but for account of their foreign principal .The agent undertakes the work connected with department of goods such as booking ,space in ships preparation of bill of lading.                                            

Del credele agent; Is agent employed his principal. He makes an undertaking to his principal make his principal to make the losses that may arise from failure of to whom he sell goods under the business. He is given a remuneration called del credere commission. The agent undertake to the loss good that have may have been incurred by the principal arising from the failure of buyer to pay.

Forwarding agent; Are those person who acts as agent of either exporters or importers. They are employed to collect and deliver goods on behalf of others. When they act as an agent of exporters they collect, the goods and attend to the packing and marking and dispatch of the goods to the property destination. They act as agents of importers they undertake delivery of goods at the port of importation. Take delivery of the goods examine  the  quantity and quality and to their property warehousing or transportation to the place of business .They possess specialized knowledge of customs and other formalities connected with import and export of goods. They relieve the importers and exporters by relieving them of the difficult task of colleting and forwarding goods.

Auctioneers; is an agent employed usually to sell goods at a public auction. He has simplified authority to sell the highest bidder He has lien on goods in possession for his changes.

Non mercantile agent; these are profession such as doctors advocate attorneys insurance agent.



Agency may be created in any of following ways;

  1. Express agreement

Agency can be created by express agreement .It will specify the scope of the authority of agent .The agent is appointed by word of mouth or in writing     e, g, to execute a deed of sale of land may be appointed by executor of a formal power of attorney on a stamped paper.

  1. Implied agreement

This arises when there is no express agreement of appointing the agent          ,but instead the existence of the agent is inferred according to the circumstances of the case or by conduct of parties on a particular occasion of from the particular relationship between parties. The agency may take the following forms;

  1. Agency by estoppels

It is based on Doctrine of estoppels, this doctrine states that ,”where a person by his words or conduct leads  the other to believe that he acting as an agency, and the other person acts on that believe he is prevented to deny the truth  of such a statement although it did not exist” This means that if an agency acts without authority or incurred a liability to a third party the principal is bound by such acts .

  1. Agency by holding out

This is based on the Doctrine of holding out. In this cases the principal is bound by all acts of the agency if he has induced other persons to believe that they are within his authority. This agency requires some affirmation or positive conduct by the principal.

  1. Agency by necessity

The law confers some authority on one person to act for another without any regard to the consent of the principal .This occurs in case of emergency in which the property or interest of another are in imminent danger .It becomes necessary in order to preserve property or interest  to act before the instruction of the owner can be obtained. The following conditions must be met before an agent acts as an agent of necessity;

  1. There should be a real necessity for acting on behalf o the principal
  2. It should impossible to communicate with the principal within time available.
  3. The alleged agent should act bonafide in the interest of the principal.

Circumstances under which agency of necessity may arise;

  • Where agents exceeds his authority ,bona fide in an emergency e g A consigns fruits to B at Nairobi to send them to London .B finds the fruits are perishing rapidly and sell them at Nairobi at best possible price.
  • Where the carrier of goods acting as a bailee does anything to protect or preserve the goods in an emergency although there is express authority in that regard .e.g. a carrier of goods may sell goods incase of accident to raise money for repairs.
  • Where a husband improperly leaves his wife without providing proper means of for her survival. The wife an agent of necessity when a husband deserts her and forced to live separately. She has authority to pledge her credit necessaries even against the wish of her husband .This rule does not apply to wife who voluntarily desserts her husband.
  1. Agency by ratification

Ratification means subsequent adoption of and acceptance of an act originally done without authority. The principal affirms or adopts the unauthorized act and agency by ratification exists. The principal becomes bound as if the act was originally authorized, thus it relates back to the original contract. Ratification may be expressed or implied.

Essentials of a valid Ratification

  1. The agent must purport to act as an agent for a principal who is in contemplation. This means this the agent must be expressly contract as an agent for the principal in his knowledge of third parties , The principal must be named  or identifiable, It is sufficient to indicate that he is acting as an agent, undisclosed principal cannot step in ratification for an act done by a third party.
  2. There should an act capable of ratification; the act ratified must be a share holder cannot ratify an act of a director which is ultra vires.
  3. The principal must be in existence. For a valid ratification the principal must be in existence at the time of making the original contract because rights and liabilities cannot be attach to a non exiting person.
  4. The principal must be competent to contract; the principal must have contractual capacity b both at the time of making of contract and time of ratification.
  5. The principal must have full knowledge of material facts. No valid ratification may be made by person who does not possess full knowledge.
  6. Whole transaction must be ratified .Ratification must be of the whole contract. One part means the whole contract is ratified. The principal cannot reject and accept some parts.
  7. Must be done within a reasonable time. Ratification is valid if made within a reasonable time after the original contract .If time is fixed must be done within that time. If no time is fixed reasonable time should be allowed and this depends on the circumstances of each case.
  8. Ratification must not injure a third part



The agent s authority means the capacity to bind the principal to third parties. The agent can bind th principal only if he act within the scope of his authority .The scope of agents of authority is determined by;

  1. Actual authority; An agent can do all acts assigned to him either expressly or impliedly and this binds the principal to third parties. The authority may be expressed when spoken or written implied authority means It is inferred by the conduct or circumstances of the case the ordinary course of business.
  2. Ostensible or apparent authority; This means an authority which the third party dealing with agent can presume he has the authority in relation to a particular business. It is doing an act usually necessary in the course of business in accordance with customs or trade usually of that particular business or market.
  3. Authority in emergency in emergency; An agent has authority to in emergency to do such acts for the purpose of protecting of the principal from loss as would be done by a person in of ordinary prudence in his own case under similar circumstances.



The agents have the following rights towards the principal;

  1. Duty to follow principals directions or customs; this is first duty of an agent to act within the scope of authority conferred upon him and perform the agency work according to the directions given by the principal.
  2. Duty to carry out the work within reasonable skill and diligence; the agent must conduct himself with skill and diligences generally possessed by a person engaged in a similar business. If he does not do so he must compensate he principal for any loss in respect of his negligence,
  3. Duty to render true accounts; He must keep proper accounts of the principles money, property and render them on demand periodically or a provided by agreement.
  4. Duty to communicate; It is the duties of the agent to communicate to the principle incase of any difficult or emergency and use reasonable skill and diligence. He should obtain instructions before doing anything.
  5. Duty not to deal on his own account; the agent must not deal on his account in the business of agency. He should not buy or sell goods before obtaining consent from the principal.
  6. Duty not to take secret profit; the agent has fiduciary duty towards the principal. He must not take secret profit out of agency business. He must pay all the money received by him. However he can deduct his remuneration or expenses incurred. If he violates this rule he has to account for it.
  7. Duty to terminate agency ; He has the duty to terminate contract of agency if the principal becomes insane or dies
  8. Duty not to delegate ;He should not delegate except under the following circumstances;
  9. Where the principal expressly permits
  10. Where the principal impliedly authorizes
  • Where the nature of agency makes it necessary to appoint a sub- agent.
  1. Where it is accustom or trade usage
  2. Where the act done is purely ministerial
  3. Where unforeseen circumstances arise rendering appointment of sub- agent

Rights of an agent against the principal

  • Right to receive remuneration

The agent has aright to receive the aged remuneration, If not agreed a reasonable remuneration. He may also claim remuneration only when he has done all what he was supposed to do. He may not receive remuneration if he misconducts himself .he is liable to pay the principal for any loss that may arise due to his misconduct.

  • Right of retainer

The agent has the right to retain the principal’s money .property in respect of his remuneration and any expenses incurred by conducting business agency.

  • Right of lien

Then agent has right to retain all goods, papers and any other property whether moveable or immoveable until he is paid all what is due to him.

  • Right to be indemnified against consequences of lawful acts

He has aright to be indemnified for all lawful acts done in exercise of his authority conferred to him.

  • Right to be indemnified against consequences for all acts done in good faith

He has aright to be indemnified for act done in good faith though the may be injurious to the third party

  • Right to compensation

He has the right to b compensated for injurious sustained by his due   to the principals neglect or want of skill.

Liability of the principal for the acts of the agent

The principal is liable for the following acts;

  1. All acts within the scope of his actual authority
  2. Where he exceeds authority the principal has the option to ratify it or disown the an unauthorized act
  3. For any fraud, of misrepresentation made when acting within the scope of his actual or apparent authority.



Liability of unnamed principal

Unnamed principal is a principal whose existence is known but not named. Once the agent discloses the contract binds the principal and the agent drops out of the transactions despite the principal is not named. The legal  position of an unnamed principal is the same with that of named principal .if the agent refuses to disclose the principal he is personally liable.

Liability of undisclosed principal

Undisclosed principal is where an agent acts on behalf of a principal concealing his name and not disclosing  is an the agent give the impression to the third party  as himself is the contracting party although the agent has the authority to act and is contracting on behalf of another. The agent contracts on his own name. The following are the rights and liabilities of principal , agent and third party;

  • Agent- is liable to the third party

–   Has aright to sue the third party if the principal remain disclosed

2)   Third party- has right to sue the agent or principal or both thus they are severally liable

-has a right to refuse to perform the contract if he had not completed and if he had not known that he was dealing with an agent.

3)   Principal –has the right to sue the third party for non- performance of contract if he discloses himself.

Personal liability of the agent to the third party

The agent is personally liable to the third party under the following cases;

  1. Where the agent expressly agree to be personally liable while contacting.
  2. Where the agent acts for foreign principal
  3. Where the agent acts for unnamed principal
  4. Where the agent acts for an disclosed principal
  5. Where the agent acts for a principal who cannot be sued ambassador, a minor president etc.
  6. Where the agent exceeds his authority.
  7. Where there is a trade usage or custom
  8. Where the agents authority is coupled with interest





Termination of agency

Agency can be terminated in any of the following ways;

  1. By act of parties
  2. By operation of law

By act of parties

Agency may come to an end by act of parties in the following ways;

  • By agreement; Agency can be terminated by mutual agreement between the principal and the agent.
  • By revocation by the principal; the principal may revoke the authority of the agent at any time before the agent exercises his rights so as to bind the principal unless the agency is irrevocable. Revocation ay be implied or express .The principal my revoke agency under the following conditions;
  1. Incase of a continuous agency may revoke it in future. Notice should be given to the agent and third party. Otherwise the principal is liable to compensation for any loss incurred.
  2. If the agency was created for affixed period can be revoked before the fixed time expires and without cause .the principal is liable to compensate for any loss as a result of revocation

NB; agency is irrevocable in the following cases;

  1. Where the agent himself has an interest in the subject matter of agency .this agency is sad to be coupled with interest.
  2. When the agent has incurred a personal liability in accordance with terms of contract of agency the principal cannot be allowed to revoke leave in the agent exposed to risks
  3. By renunciation by the agent

The agent may renounce to the principal that he dos notice intend to continue with the contract of agency against his will. He must give reasonable notice otherwise he may be liable to compensate the principal for any damages.

By operation of law

Agency can be terminated by operation of law in the following ways;

  1. Completion of business; when the business of the principal and the agent is complete agency contract comes to an end.
  2. Expiry of time; this is where the contract of agency project was made within a fixed time, when the time expires the agency come to an end.
  3. Death ,insanity of the principal or agent; if either of the parties dies or becomes insane during the agency , the agency is terminated
  4. Destruction of the subject matter; if the agent is appointed to a particular thing and the thing is destroyed the agency comes to an end.
  5. Dissolution of the company; if the company of the principal is dissolved the agency is terminated
  6. Principal or agent is an alien enemy; if the principal or the agent is an alien enemy the agency should be terminated.
  7. Bankruptcy of the principal.; the bankruptcy of the principal terminates the agency



  1. Define the following terms-
    1. agent
    2. agency
  • Principal (2marks @)
  1. Explain five the types of agents. (10 marks)
  2. Agency may be created by implied agreement. Explain. (10marks)
  3. Describe the circumstances under which agency by necessity may be created. (10marks)
  4. Explain the essentials of a valid ratification. (12marks)
  5.    Discuss five duties of an agent towards the principal.                                         (10marks)
  6. Explain the rights of the principal (10 marks)
  7. Under what circumstances is the agent personally liable to the third party? (8marks)
  8. Explain termination of agency by operation of law(10marks)
  9. Explain the circumstances under which the principal may revoke the agents authority. (10marks)


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