AGENCY

BY
MRS C M SIMBOTWE
 LAW OF AGENCY
• The common law position is that “he who can
act for himself may also act through an agent”
and this is summed up in the Latin maxim “QUI
FACIT PER ALIUM FACIT PER SE.”
• However, there are two exceptions to this
position:
1. Where personal performance is required; and
2. Where the parties involved expressly or by
necessary implication prohibit delegation.
 Definition of Agency
• An agency relationship involves three very specific parties
namely:
• (i) Principal
• (ii) Agent
• (iii) Third Party
• The Principal is the person on whose behalf the contract is
made. It is a person on whose behalf the agent acts.
• The Third Party is the party with whom the agent contracts on
behalf of the principal and who as a result of the very special
rules enjoys a series of mutual rights and obligations with the
principal, but there is no contractual relationship with the
agent.
 Definition of Agency
• In law the word ‘agent’ is used to refer to a person who
has legal authority to bind another by entering into
contract with a third person on that other’s behalf.
• An agent is a person employed to do any act for
another, or to represent another in dealing with third
parties or persons.
• The important feature of the relationship is that the
agent has power to bind his principal to a contractual
relationship with a third party without the agent himself
becoming a party to the contract.
 Essential and Legal Rules for a Valid
Agency
• The essential features for a valid agency are as follows:
• (1) There should be an agreement between the principal
and the agent.
• According to this element, the agency must be created by
an agreement between the principal and agent.
• Therefore there must be an agreement by which a person
is appointed as an agent by the other.
• The agreement may be express (that is, by words of
mouth or in writing), or implied (that is, it may arise by
the conduct of the parties, by necessity or circumstances
of the cases).
• (2) The agent must act in the representative
capacity.
• The agent must represent his principal and act on
his behalf.
• Moreover, the agent must have the power to create
legal relationship of his principal with third parties.
• Therefore, the true nature of the relationship should
be seen. If the agent acts in representative capacity
and had the power to bind his principal with third
parties, the relationship is that of ‘agency’.
• 3) The principal must be competent to contract.
• The principal must be competent or have capacity
to enter into a valid contract, that is, he must of
sound mind, and have attained the age of majority.
• Therefore, a minor or a person of unsound mind
(insane) cannot appoint an agent to act on his
behalf.
• An appointment of an agent, made by an
incompetent person is void.
• (4) The agent need not be competent to contract
or have capacity to contract.
• As a general rule there is no requirement that an
agent must have full contractual capacity when he
acts on behalf of the principal.
• This is because the contract is that of the principal,
and not the agent.
• The principal must, however, have contractual
capacity at the time the contract in question is
entered into.
• It is therefore legally possible for a minor to act on
behalf of an adult principal in bringing about a binding
contractual relationship with a third party who has
contractual capacity.
• However, the agency contract between the principal and
agent will not be binding on the agent because of the
agent’s minority.
• For the same reasons the law denies minors from
entering into contractual relations of any kind, minors
are generally not engaged as agents for persons with full
contractual relations.
 Classification of Agents
1. GENERAL AGENTS- appointed to perform some
task in a general area. He has authority to enter
into any contract on behalf of his principal are
normally within the scope of the trade, business or
profession in which the agent is employed.
2. UNIVERSAL AGENTS- has unlimited authority to
enter into any contract for which his principal has
contractual capacity.
3. SPECIAL AGENTS- engaged to undertake or
perform a particular task or special function only.
 Creation of Agency
• The relationship of PRINCIPAL and AGENT may be
created in any of the following ways:
1. By EXPRESS agreement.
2. By IMPLIED agreement.
3. By Operation of the LAW, that is,..
a. Agency of Necessity
b. Agency by Ratification
c. Agency by Estoppel
d. Agency Under Statutory Provisions
(1) Agency by Express Agreement
• An agency may be created by express
agreement.
• In this case, an agent is appointed by an
agreement in writing or by words of mouth.
• It may, however, be noted that no particular
form or set of words is required for the
appointment of an agent.
 (2) Agency by Implied Agreement
• An agency may also be created by an implied
agreement.
• In this case, a person becomes an agent of the
other due to the conduct of the parties or the
course of dealing between the parties or the
situation of the particular case, for example, when
one person places another in such a situation in
which the other person is understood to represent
or act on his behalf, he becomes an implied agent.
• In Hely-Hutchinson v. Brayhead Ltd [1967] 3 All ER 98: The
directors of a company allowed the chairman to act as
though he was in fact the Managing Director, although he
had never been appointed to that role and so had no
express authority to bind the company.
• The company was held to be bound by transactions
entered into by the Chairman as a result.
• Similarly, in Mullens v. Miller (1882) 2 Ch D 194: An estate
agent was held to have implied authority to give details and
make warranties in respect of properties that he was selling.
• See also Watteau v. Fenwick (1893) 1 QB 346
 (3) Agency by Operation of Law
• In certain instances agency will arise without the
parties expressly stating that such a relationship has
come into existence between them or indeed that they
desire such a relationship be created.
• The following are the circumstances under which the
an agency relationship will be deemed to have come
into existence by operation of the law:
• (a) Agency of necessity
• (b) Agency by Cohabitation
• (c ) Agency under Statutory Provisions
 (a) Agency of Necessity
• The law recognizes that in certain situations emergencies
arise which may necessitate a person to act promptly in
order to protect the interests of another by doing acts which
that other person may have done if he were himself present.
• In such circumstances, the law implies authority on the part
of a person to bind another by any act honestly done on his
behalf under the pressure of a real commercial necessity
even if the person acting in fact acts without the authority or
consent of the person on whose behalf he acts.
• Agency is said to arise in such situations by implication of the
law. The agency that so arises is known as agency of
necessity.
• A typical example of a situation when an agency of
necessity will arise is where a carrier of perishable
goods suffers a breakdown and engages another
transporter to carry the goods to their destination
or sells them off quickly at the nearest available
market to avoid the loss of the consignment.
• However, to constitute a valid agency of necessity
the following conditions must be satisfied:
• (i) There must be a genuine or real commercial
emergency
• Agency of necessity will only arise where there is an
emergency.
• Where the circumstances are such as not to imply an
emergency, the law will not recognize the person acting
on behalf of another as being an agent of necessity.
• In Great Northern Railway v. Swarfield (1874) LR 9: The
Defendant consigned a horse with the Plaintiff, the Great
Northern Railway. When the horse reached the
destination, nobody came to take its delivery.
• The Plaintiff had no arrangement of its own to keep the
animals. Therefore, it delivered the horse to a stable-
keeper for its maintenance and safe custody.
• It was held that the Plaintiff was an agent of necessity,
and was entitled to recover charges of the stable-keeper.
• Similarly, in Sims & Co. v. Midland Railway Company
(1913) 1 KB 103: The defendant consigned certain
quantity of butter with the plaintiff, Midland Railway
Company. Due to the strike, the butter was delayed in
transit. The plaintiff sold the butter as it was of perishable
nature.
• It was held that the sale was binding on the
owner the Defendant , and that the plaintiff
was an agent of necessity.
However, in Prager v. Blastpiel, Stamp and
Heacock Ltd (1924) 1 KB 566: It was held that
there was no necessity and that the sellers had
not acted bona fide, and were not therefore
agents of necessity to resell the goods.
• Couturier v. Hastie (1856) 5 HLC 673, a cargo of corn was in
transit being shipped from the Mediterranean to England.
The owner of the cargo sold the corn to a buyer in London.
The cargo had however, perished and been disposed of
before the contract was made. The seller sought to enforce
payment for the goods on the grounds that the purchaser
had attained title to the goods and therefore bore the risk
of the goods being damaged, lost or stolen.
The court held that the contract was void because the
subject matter of the contract did not exist at the time the
contract was made.
• (ii) It must have been impracticable to obtain
instructions from the principal or the agent must not
be in a position to communicate with the principal or
to obtain instructions.
• It must be shown that the person who acted on behalf
of another could not obtain that other’s instructions
before acting because it was impracticable to or
commercially impossible to obtain instructions.
• This requirement is however, getting more and more
watered down with the improvements in
communication.
• Whereas before, the quickest means of
communication would have been the telex machine
where no phone facilities existed, the world has in
recent years witnessed phenomenon increase in
modes of communication such as fax machine, cell
phone, the internet, etc, which have made
communication easier and fast.
• This in turn makes the satisfaction of this
requirement in proving agency of necessity less
easy.
• In Springer v. Great Western Railway (1921) 1 KB 257; 24 LT 79:
The plaintiff instructed the defendant railway company to
transport tomatoes from the Channel Island to London, by ship
to Weymouth and by train to London. Owing to bad weather,
the ship was detained at Channel Island for three days. When
the ship finally arrived at Weymouth, the railway company’s
employees were on strike, and so offloading was delayed for
two days. Worried that the tomatoes would go bad, the railway
company sold the tomatoes off locally without communicating,
as they could have done, with the plaintiff. The plaintiff then
brought the action claiming damages for breach of the contract
of carriage. The defendant sought to justify their action of
selling the tomatoes under the agency of necessity.
• It was held that for there to be an agency of
necessity, it must have been practically impossible
for the ‘agent’ to obtain the owner’s instructions
as to what should be done. In the circumstances of
this case the defendant should have
communicated with the plaintiff when the ship
arrived at Weymouth, in order to get the plaintiff’s
instructions. There was no agency of necessity in
this case since communication was not impossible.
• See also The Choko Star (1990) 1 Lloyd’s Rep. 516
• (iii) The act must be done with the principal’s best interest
in mind.
• The law does not encourage people to employ themselves
all in the name of agency of necessity and thereby impose
liabilities on other persons behind their backs.
• Therefore, it is a requirement that the agent must have
acted bona fide in the principal’s interests rather than the
agent’s own interests, and must have acted reasonably in
the circumstances. The best interests of the principal will
however not override the express instructions given.
• In Fray v. Voules (1859) 120 ER 1125: An attorney was
engaged to conduct a case on behalf of his client . He
reached a compromise on the advice of counsel. The
compromise was contrary to the express instructions
given by the client.
• It was held that an attorney has no authority to enter
into a compromise against the directions of the
instructing client even if he is acting bona fide in the
interests of his client.
• See also Sachs v. Miklos (1948) 2 KB 23; Munro v.
Willmont (1949) 1 KB 295
 (b) Agency by Cohabitation
• A wife who lives or cohabits with her husband is regarded has
having authority of her husband to buy articles of household
necessity.
• This means that the wife is considered an implied agent of the
husband for the purpose of buying household necessaries on
credit, and the husband becomes bound to pay for the same.
• In Debenham v. Mellon (1880) 6 AC 24: A man and his wife
were manager and manageress respectively of the hotel in
which they cohabited. The husband gave his wife an allowance
for clothes but expressly forbade her from purchasing goods
on his behalf as an agent. The wife ordinarily purchased
clothes from the plaintiff in her own name.
• On one occasion, however, she purchased clothes and pledged
her husband’s credit.
• It was held that there was no agency in this case as the husband
had expressly forbidden it. No agency could be implied from
cohabitation either as the couple was not cohabiting in a
domestic situation. As the plaintiff well knew, the couple lived
in a hotel as manager and manageress, not as a family. The
husband was not consequently liable for the debt incurred.
• The presumption of cohabitation is rebuttable by the husband
showing that his wife is adequately supplied with necessaries or
that the goods supplied are not necessaries.
• See Phillipson v. Hayter (1870) LR 6 CP 38
 c ) Agency under Statutory Provisions
• Provisions of certain Acts of Parliament provide for the existence
of an agency relationship between parties.
• (i) Partnership Act, 1890 – section 5, provides that every partner
is an agent of the firm and his partners for purposes of the
business of partnership;
• (ii) The Income Tax Act – section 84 provides that any person or
partnership may be declared by the Commissioner General to be
an agent for the payment of tax due by another person or
partnership.
• (iii) Bank of Zambia Act – section 48 provides that the Bank (BOZ)
shall act as agent for the Government for such purposes and on
such terms and conditions as the Minister may determine.
 (4) Agency by Estoppel
• An agency relationship may arise by operation of the doctrine
of estoppel where a person holds out another as having
authority to represent him.
• The term ‘estoppel’ may be defined as prevention of a claim
or assertion by law. In other words, when someone makes
another person to believe that a particular thing or fact is
true, then later on he cannot be allowed to deny the truth of
that thing.
• Therefore, when a person, by his conduct or statement,
willfully leads another person to believe that a certain person
is an agent, then he is estopped or prevented from denying
the truth of the agency.
 (5) Ratification
• The term ‘ratification’ may be defined as the confirmation of
the acts already done.
• Ratification occurs where the agent does an act on behalf of
his principal without the principal’s prior authority and the
principal subsequently adopts the act done.
• Ratification need not be expressly done; it may be inferred
from an act showing an intention to adopt the act performed
on behalf of another without that other’s prior authority.
• The acts of a person not appointed agent by another may bind
that other if he does an act that amounts to ratification of
those acts.
• See Waithman v. Wakefield (1807) 170 ER 898
• There are a number of conditions that must be
satisfied for there to be a valid ratification:
• (i) The principal must be in existence at the time
the act was done. See Kelner v. Baxter (1866) LR
2 CP 174; Newborne v. Sensolid Ltd (1953) 1 QB
45
• (ii) The principal must be ascertainable or known.
See Watson v. Swann (1862) 11 CB (NS) 756;
Keighley, Maxted & Co. v. Durant (1901) AC 240
• (iii) The principal must have had capacity to contract at
the time of the act. See Grover v. Grover Ltd v.
Matthews (1910) 2 KB 401
• (iv) The act must be ratifiable. See Williams v. Moor
(1843) 11 M & W 256; Brook v. Hook (1871) LR 6 Exch
89; Ashbury Railway carriage & Iron Co. v. Richie (1875)
LR 7HL 653
• (v) The ratification must be made within a reasonable
time. See Grover v. Grover Ltd v. Matthews (1910) 2 KB
401
• (vi) The acts to be ratified should be valid and lawful
 AUTHORITY OF AN AGENT
1. ACTUAL AUTHORITY- conferred on the agent by the principal
under the terms of the agreement or contract between them. If
the Principal has given prior consent to the agent before acting
on his behalf then the agent is said to have actual authority
(Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd
2 QB 480).
2. APPARENT OR OSTENSIBLE AUTHORITY- legal relationship
between the principal and the third party created by
representation, made by the principal to the third party, intended
to be and in fact acted upon by the third party, that the agent has
authority to enter on behalf of the principal into a contract of a
kind within the scope of their apparent authority, so as to render
the principal liable to perform any obligations imposed upon him
by such contract (Freeman case above).
• USUAL AUTHORITY – the principal is liable for
all acts of the agent which are within the
authority usually confided to an agent of that
character, notwithstanding limitations, as
between the principal and the agent put upon
that authority (Watteau v Watteau [1893] 1
QB 346)
 AGENT’S RELATIONSHIP WITH THIRD
PARTIES: GENERAL
• The general rule is that where an agent makes
a contract on behalf of his principal, the
contract is between the principal and the third
party and only the principal can sue on that
contract.
• The agent acquires no rights under the
contract, nor does he incur any obligation.
• He drops out of the picture having performed
the task asked of him by his principal.
 DISCLOSED AND UNDISCLOSED AGENCY
• The rights and liabilities of the principal and agent against
third parties may differ according to whether the agency is
disclosed or undisclosed.
• Agency is disclosed where the agent reveals that he is
acting as an agent – if the agency is disclosed it is of no
legal significance that the principal is named.
• The distinction between disclosed and undisclosed agent is
important as it affects the principal’s ability to ratify the
agent’s actions.
• Furthermore, the agent’s liability to third parties may
depend on whether the agency was disclosed or not.
 DISCLOSED AGENCY
• Where an agent makes a contract disclosing the agency,
the normal rule is that a direct contractual relationship
is created between the principal and the third party and
either party can sue the other on the contract.
• If an agent acts without the principal’s actual authority,
the principal can ratify the agent’s actions provided that
the agent purported to act on the principal’s behalf.
• Only a disclosed principal can ratify an unauthorized
contract (Keighley, Maxted and Co v Durant (1901) AC
240)
 UNDISCLOSED AGENCY AND THE THIRD
PARTY’S RIGHT OF ELECTION
• If the agent contracts with a third party without disclosing that he
is acting as an agent, the agency is undisclosed.
• The contract is initially between the agent and the third party and
each may enforce the contract against the other.
• However, if the third party discovers the principal’s existence, he
may enforce the contract either against the agent or the principal
BUT NOT both (RIGHT OF ELECTION- Boyter v Thomson (1995) 3
All ER 135).
• The agent still remains liable even when the third party discovers
the existence of an undisclosed principal.
• Moreover, provided that the agent acted with his authority, the
principal can intervene and enforce the contract against the third
party.
 Duties of an Agent
• (i) Duty to obey or follow instructions of the principal. See
Ireland v. Livingstone (1872) 27 LT 79
• (ii) Duty to show proper skill and care. See Keppel v. Wheeler
(1927) 136 LT 203; Armstrong v. Jackson (1916 -17) ER 1117
• (iii) Duty not to make secret profits from agency. See
Anderson v. Ramsay & Co. (1903) 2 KB 635
• (iv) Duty not to delegate. Delegatus non potest delegare See
De Bussche v. Alt (1878) LT 370; Calico Printers v. Barclays
Bank (1931) 145 LT 51
• (v) Duty not to disclose confidential information. Lamb v.
Evans (1893) 68 LT 131
 Rights of an Agent
• (i)Right to receive remuneration. See Way v.
Latilla (1937) 3 All ER 759
• (ii)Right to be Indemnified
• (iii) Right to set-off
• (iv) Right of Lien.
 TERMINATION OF AGENCY
1. Notice
2. Completion of Assignment
3. Mutual Agreement
4. Lunacy, Death or Bankruptcy
5. Illegality
6. Dissolution (where principal and/or agent are
corporations)
7. Destruction of Subject-matter
8. Expiration of Time/ Elapse of Time
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