AGENCY NOTES

Express Appointment

An agent may be expressly appointed by words, spoken or written. In general no formality such as writing is required. The appointment may be made orally, or in writing. Even where an agent is appointed orally he can validly make a contract which is required by law to be in writing or to be evidenced in writing. However where the authority of the agent is to execute a deed, the agent must also be appointed by deed called the power of attorney.

Such appointments normally take the form of a contract, but contract is not an essential requirement of such agency. An agent may act gratuitously but in that case he will be under no obligation to act for the principal. Where a gratuitous agent does act, he owes a duty of due care and skill to his principal.

12.3.2 Agency by Estoppel

Agency by estoppel is not created by an agreement between the parities rather it is imposed by law. If one person creates an impression by his words or conduct that another has authority to make contracts on his behalf then he will be estopped by his conduct denying the existence of agency and he will be bound by such contracts as if he had expressly authorised them. There are three requirements of estoppel. First, there must be a representation, whether express or implied, made to the third party. Second, there must be some reliance by the third party on the representation made. Finally, there must be detriment to, or alteration of position by, the third party as a result of his reliance on the representation. In Freeman &Lockyer v. Buchhurst Part Properties (Mangal) Ltd(1964) the articles of association of D, the defendant company empowered it to appoint a managing director. A, acted in the capacity of the managing director with knowledge and consent of the other directors. A contracted P to do certain work for the company but the company refused to pay on the ground that A had no authority to make such contract on its behalf. Held, although A did not have actual authority, there was an agency by estoppel since other directors on behalf of the company by their conduct represented to P that A was empowered to act as managing director and that in that capacity he had authority to make the contract on company’s behalf.

In Edmund Schulter& Co (Uganda) Ltd Patel (1969) P sold land to D through A, who had been given the duplicate certificates of title. D paid a deposit of Shs. 50,000 to A and the balance was paid to P. A disappeared with the deposit.P sued D to recover the amount of deposit from D on the ground that A had no authority to receive that amount. Held, P by handing over the duplicate certificates of title to A had created an impression that A had authority to receive the deposit, hence he was estopped from denying A’s authority to receive deposit.

12.3.3 Agency of Necessity

Agency of necessity is formed by operation of law where a person may acquire authority to act for another even without his authority in circumstances of urgent necessity. This doctrine probably applies only where there is already some existing contractual relationship between the principal and the person who acts in emergency on his behalf. Thus, the master of a ship entitled in cases of accident and emergency to pledge the ship as security for the cost of repairs necessary to enable her to continue voyage and such a contract is biding on the shipowner. So also, he may bind the cargo owners where the cargo is in danger, e.g. perishable goods perishing, by selling the cargo. Recall also, Couturier v Hastie (1856) discussed in lecture nine, where the master of the ship had already sold the goods as a result of which the second sale was held void. The same power is possessed by other carriers in respect of perishable goods. Also when a person is entrusted with another’s property and does an act to preserve the property entrusted, he becomes an agent of necessity and the owner of the property is bound. In G.N. Railway v Swaffield (1874) a horse was sent by train to a certain destination. On its arrival there was no one to receive it. The railway company in order to keep the horse alive sent it to a livery stable for the night and thereby incurred expenses. Held, the railway company was an agent of necessity who had implied authority to incur the expenses in question.

However, such an agency will not be created unless three conditions are satisfied.

There must be actual and definite necessity or emergency for the agent to act as he did.

InPrager v Blastpiel (1924)A bought skins to the value of $1,900 as agents for P, who were fur merchants in Bucharest. A was unable to send skins to P owing to the prevailing war conditions there. A sold skins before the war ended. Held, there was nor real emergency for the sale of the skins, since the skins were not likely to deteriorate if properly stored, and A was therefore liable to pay damages to P.

The agent of necessity must act in good faith in the interests of all the parties and in a manner reasonably necessary in the circumstances.
It must be practically impossible to communicate with the principal to obtain his instructions.

In Springer v Great Western Railway (1921)P sent tomatoes by a ship for London. The ship delivered them at a port three days late. The tomatoes could not be unloaded for

further two days due to a railway strike. When unloaded they were found bad and the railway company sold them locally without making any communication with P to obtain his instructions. Held, the railway company was not an agent of necessity because it did not communicate with P to obtain his instructions. Accordingly, they were held liable for damages.

In modern times where the means of communications are so advanced that generally it would not be impossible to obtain instructions of the principal. Hence agency by necessity will arise only in rare cases.

12.3.4. Agency by Ratification

If a person having no authority purports to contract on behalf of a principal or an agent exceeds his authority, the contract is not binding on the principal. But the principal may subsequently confirm and adopt the contract. This subsequent adoption is known as ratification. On ratification the principal is bound by that contracts as if it is made with his authority. Ratification may be either express or implied, that is, by the conduct of the principal. In Cornwall v Wilson (1750)A without authority bought some hemp on behalf of P fromT.P then sold the hemp. Held, P’s act of selling the hemp amounted to implied ratification of the purchase contract made by A.

Ratification is subject to a number of rules:

The ratification relates back to the original making of contract by the agent, that is, to the moment when the final contract was concluded between the agent and third party. In Bolton Partners v Lambert (1888)D made an offer to buy the company’s property. The offer was accepted by M, the managing director of the company without any authority to do so. subsequently revoked his offer. The company ratified the contract after D’s Held, the contract was binding on D since the ratification relates back to the time of M’s acceptance of the offer.
The principal must ratify the whole contract. If he ratifies part of a contract he is taken to have ratified in toto, that is, the whole contract.
At the time of contracting the agent must purport to act on principal’s behalf and not on his

own account. The agent must name or sufficiently identify the person for whom he purports to act. InKeighley, Maxsted& Co. v Durrant (1901)PauthorisedA to buy wheat at a certain price on a joint account for himself and A. A exceeded his authority and bought wheat at a higher price from X, since wheat was not available at that price. A contracted in his own name, although he intended to purchase on the joint account P and himself. P ratified the contract but he and A failed to take delivery. X sued P for breach of contract. Held, P was not liable to X because he was not entitled to ratify the contract which had not purported to be made in his name. The rule is therefore that an undisclosed principal cannot ratify a contract made by the agent having no authority.

The principal must have contractual capacity at the date of both the making of the contract and the ratification. This condition is not satisfied, for example if the principal is an enemy alien at the date of contract. Nor it is satisfied if an ultra vires (beyond the powers) contract is

made by the director of a company. In Ashbury Railway Carriage Company V Riche (1875)

a company’s objects stated that it was formed for the purpose of manufacturing and dealing in railway machinery. The company’s directors entered into a contract to construct a railway line which was outside the scope of its objects. Held, the contract was ultra vires the company therefore void as beyond its capacity and could not be ratified even by unanimous vote of all the members. In the United Kingdom this rule no longer applies to third-party dealing with companies, but it is still applicable in Kenya.

(5) The principal must be in existence at the time the agent had made the contract. InKelner v Baxter (1866)D, a wine merchant sold wine to A who purported to contract on behalf of a hotel company which had not been formally incorporated. When it was incorporated, the company purported to ratify the contract made by D, but then went into liquidation. When sued on the contract A argued that he contracted as an agent of the company and that the company was liable on the contract since it had ratified the contract, Held A was personally liable because company’s ratification was invalid as it was not in existence at the time of the contract in question. (6.) There should be an act capable of ratification. A contract that is void in its inception cannot

be ratified. Thus as we have seen in Ashbury Railway Carriage Co. v Riche (1875) that a company cannot ratify a void contract made by its directors. Similarly, in Brook v Hook (1871) AP’s signature on a joint and several promissory notes, purporting to be made by PA in favour of T. In order to save A, P purported to ratify A’s act. Held, the ratification was ineffective because the act of forging was void from the outset. forged his uncle and

(7)The principal must ratify the contract in time, that is, before the time fixed for its performance. If no time is fixed the contract must be ratified within reasonable time.

12.3.5 Agency by Cohabitation

It is necessary to treat the agency in case of cohabitation as a separate category since it may be a form of implied agency, or agency by estoppel, or by necessity.

12.3.6 Implied Agency by Cohabitation

When a husband and wife leaving together there is a presumption, though no more, that the wife has implied authority to pledge her husband’s credit for necessaries, which are defined as things that are really necessary to the husband’s style and standards of living in so far as they fall within the domestic department in management of the wife. This presumption applied equally in a case of woman living with a man as a mistress. The presumption can, however, be rebutted by the husband or the man providing contrary evidence to the effect that:

The tradesman has been warned that the wife did not have the authority to contract on his credit.
The order, though for necessaries, was excessive and extravagant in view of the husband’s income.
The wife was adequately supplied with the goods in question.
The wife had been expressly forbidden to make such contracts.
The wife has sufficient funds for buying such goods. In Miss Gray v Cathcart (1922) W,

wife bought clothes to value £215 from T , a tradesman pledging her husband, H’s credit , T sued HH was able to provide evidence that he paid sufficient allowance of £960 per year to W. Held, H was not liable. for the amount.

The last three grounds of rebuttal suggest that the agency of cohabitation depends upon a form of an implied authority. However they would not be sufficient to prevent the tradesman from raising question of agency by estoppel.

12.3.7 Agency of a Wife by Estoppel

A wife may be considered an agent of the husband, if the husband has been in the habit of paying his wife’s bills with a particular supplier. The wife’s agency in such cases will arise by estoppel since the husband by conduct of paying wife’s bills is estopped from denying the fact of agency.

12.3.8 Agency of a Wife by Necessity

A wife may also be an agent of necessity. The law imposes obligation upon husband to support his wife. Therefore in a situation where she was deserted or justified in leaving her husband and had inadequate means of support, she could pledge her husband’s credit for necessaries. InChaganlalJani v RanchoddasKalvanji, H and W, a husband and wife were living in the same house. But WH and H did not maintain her. W used to buy the necessary household articles from T. A tradesman. On an occasion when W failed to pay, T sued HH was liable to pay because H had a duty to support his wife and therefore she was eligible to pledge his credit. did not manage household department for for the price of necessaries supplied to her. Held,

12.4 Authority of the Agent

An agent may have actual, ostensible (or apparent) or usual authority.

(a) Actual Authority

Actual authority may be express or implied

(i) Express Authority arises when the principal gives authority to the agent by express words

spoken or written. For example, where a board of directors pass a resolution which authorises two of their members to sign a cheque. In case of express grant of authority the extent of authority granted depends upon the construction of the agreement. Where the agency relationship is created by deed, the authority will be construed strictly. In Jacob v Morris (19902) P an Australian principal authorisedA, an English agent to buy good on their behalf and write bills of exchange, etc. PP was not liable for the money borrowed by A for his own purposes on the bills of exchange. borrowed money on strength of the bills of exchange. Held,

(i) Implied authority denotes authority which upon consideration of all the circumstances may

be inferred to have been given to the agent by the principal. For example, where express authority had been given for a particular purpose or purposes, then there is an implied authority to do everything to achieve those purposes. Thus a lawyer has an authority to bind his client to any agreed compromise of litigation in which the client is engaged. Authority may also be implied from a particular trade usage. The effect of implied authority from trade usage may be to grant an agent greater authority than the principal intended. Moreover, implied authority refers to the authority implied by law, as in case of agency by necessity or agency of cohabitation discussed earlier in this lecture.

Apparent or ostensible authority is authority of an agent as it appears to others. It is merely a form of estoppel and it has been termed agency by estoppel. It often coincides with actual authority but sometimes ostensible authority exceeds actual authority. InPanoroma Development (Guildford) Ltd v Furnishing Fabrics Ltd (1971) A was the secretary of D, the defendant company. A in his capacity as a secretary hired expensive self-driven cars from P

without any actual authority from D, and used them for his own purposes, Held, D were liable for the charges for the car hire because A as the company’s secretary had the ostensible authority to act for the company in administration matter, such as hire.

Usual authority refers to the authority which agent of the type concerned usually has in a particular trade or business. It arises where the agent is appointed by the principal to some position of the office. There seems to an overlap between usual and implied or usual and ostensible authority. InWatteu v Fenwick (1893) A, a manager of a public house owned by P bought some cigars from T on credit. A had been expressly forbidden by P to purchase cigars on credit. A ordered cigars in his own name and T believed that A was contracting in his own behalf. Being unable to obtain payment from A, T sued P. Held, P was liable since it was usual for the public house managers to buy cigars for resale in those Thus, A was acting within his usual authority.

(d.) Breach of Warranty of Authority

A person who professes to act as an agent, but who has no authority to act for the alleged.principal, or has exceeded his authority, is liable in an action for breach of warranty of authority by the third party with whom he made the contract. Certain points may be noted in this regard:

The agent is not liable if the third party knows of his lack of authority at the time the contract was made or if the contract excludes his liability.
The action can only brought by the third party and not by the principal.
The agent is liable whether he acted innocently or fraudulently. For example his authority has been terminated, without his knowledge, by death or mental disorder of his principal.
The measure of damages for breach of warranty of authority is the actual loss sustained. Intext Question

Explain what do you understand by breach of warranty of authority by an agent

12.5 Relationship Between Principal and Third Party

Where a contract is made by an agent the question whether the principal or the agent can sue or be sued by third party depends on the intention of the parties. If no clear intention is evident, the following rules apply:

12.5.5 Where the Principal is Disclosed and Named

When the agent not only disclosed to the third party the fact that he is a mere agent but also named his principal, the prima facie rule is that the contract is the contract of the principal, not that of the agent. Only the principal can sue or be sued. The agent incurs neither rights nor liabilities with regard the third party.

12.3.5 Where the Principal is Disclosed but not Named

Once more the general rule is that the agent incurs neither rights nor liabilities under the contract. He can neither sue or be sued. But a contrary intention that the agent shall be a contracting party is more easily inferred than when the principal is named. In Universal Steam Navigation Co. Ltd v James McKelvie& Co (1923) a charterparty was made between the shipowners andcharters, signed by J as agents. The charterparty provided for payment by the “charterers” of demurrage in the event of ship being detained beyond the stipulated time. The shipowners knew that J were acting as agents for another, but they did not know the name of the principal. J was subsequently sued for demurrage by the shipowners. Held, Jwere not liable under the contract since they merely acted as agents for another. Regardless of whether the principal has been named or not, there are some exceptional cases in which the agent may be personally liable.

Where he executes a deed in his own name he is liable on the deed and entitled under it. The principal in this case has neither rights nor obligations.
Where he signs negotiable instrument in his own name without adding words to his signature describing himself as agent
Where the custom of a particular trade makes him liable.

(i) Where he is in fact the principal but contracts as agent.

12.5.3 Where the Principal is Undisclosed

Where the agent discloses neither the existence nor the identity of the principal the following possibilities arise:

The agent may sue or be sued on the contract or
The principal when discovered may sue or be sued

The right of action of the undisclosed principal, however, is subject to three limitations:

The authority of the agent to act for the principal must have existed at the date of contract, and
The undisclosed principal cannot intervene if this would be inconsistence with the terms of

the contract. In Humble v Hunter (1842) an agent entered into a charterparty and described himself as “owner” of a particular vessel. Held, the principal, whether disclosed or not, could not sue on the contract made by the agent since the words “owner” implied that the person signing was the principal.

The undisclosed principal cannot sue if the third party can show that he wanted the deal only with the agent and with no one else. In Collins v Associated Greyhound Racecourses Ltd (1930) A, without disclosing his principal P, agreed to underwrite a new issue of shares by a company, that is, agreed to take any shares which were not subscribed for by the public. P then sought to come into the contract. Held, P could not do so because while entering into the contract the company exclusively relied on A’s business reputation and integrity.

Also, on discovering the principal, the third party must elect whether to seek to make either the agent or the principal liable and that he cannot go back on his decision and sue the other. Commencement of proceedings against either the principal or agent is prima facie evidence of such election but such evidence is rebuttable. In Clarkson, Brooker Ltd v Andjel (1964) it was held that commencement of proceedings against the principal did not prevent the third party abandoning those proceedings in order to seek payment from the agent.

12.6 Relationship Between Agent and Third Party

The general rule is that an agent is nether liable or entitled under a contract which he makes on behalf of his principal. The agent drops out of the relationship. There are exceptions, however, to this general rule.

12.6 .1 Personal Liability of Agent

In a number of situation an agent will be personally liable on the contract made with the third party. We have already stated earlier in this lecture while discussing relationship between the disclosed principal and the third party, certain situations in which the agent may be personally liable on the contract made by him with the third party.

An agent may also incur personal liability in the following situations:

Where contract expressly provides that the agent should be a party to the contract in addition to the principal.
Where he contracts on behalf of a non-existent principal (recall Kelner v Baxter, discussed earlier in this lecture).
Where the agent contracts on behalf of the undisclosed principal, until the time the principal is disclosed the agent is the only person liable on the contract. On discovering the principal, the third party may elect either to sue the agent or the principal.
Where the agent contracts with the third party on behalf of the principal without any authority or exceeds his authority, unless the contract has been subsequently ratified by the principal.

12.7 Relationship Between Principal and Agent

The relationship between the principal and the agent creates certain rights and duties towards each other.

12.7.1 Duties of an Agent towards his Principal

The agent’s obligations to his principal may derive from contract, or may be implied by law. Duties are implied by law since in some circumstances agency may not be created by the contract.

(a) Duty to Exercise Due Care and Skill

The agent is expected to exercise reasonable care and skill in the performance of his duties. The degree of care of skill demanded of him depends of the particular circumstances. In Keppel v WheelP employed A to sell a house. X made an offer to purchase the house at a certain price. AP, who accepted the offer “subject to the contract”. Subsequently, Y offered a higher price but this was not communicated by A to P. Having no knowledge of the higher price offered by Y, P signed a contract for the sale of the house with X. Held, A was liable to pay the difference between the two offers since he was in the breach of duty of care towards P in not communicating Y’s offer to him. (1927) communicated it to

(b) Duty to Obey Instructions

The agent must carry out his principal’s lawful instructions and failure to do so will amount to a breach of contract. Where there is no contract between the principal and the agent there can be no duty to obey instructions as such, but there may still be duty to exercise due care and skill. InTuppin v Bilton (1843) A, an insurance broker was employed by P to insure a ship owned by him. A failed to effect the insurance. The ship was lost and P claimed damages. Held A was liable to P.

(c)Duty to Act in Good Faith

The agent is in a fiduciary relationship with his principal and therefore must act in good faith and for the benefit of his principal. His fiduciary duties include:

(i) Duty to Avoid any Conflict of Interest with the Principal

The agent must not put himself in a position in which his own interests conflict with his duty to his principal. The classic example of conflict of interests is where he buys for himself goods which he has been instructed to sell for his principal, or where he sells his own goods when he has been instructed to buy on behalf of the principal. This is not to say that an agent can never sell his goods to the principal or he cannot buy goods of his principal. He can do so provided that he discloses all the facts to the principal and even after knowing the facts the principal chooses to go ahead with the transaction. InKimber v Barber (1872) P employed A to buy some shares in a certain company for him. A sold his own shares in the company to P for £3 per share. In fact A had recently purchased them at £2 each. Held, P could claim £1 difference on each share because there was a conflict of interest and duty.The agent’s interest as a seller was to obtain the highest possible price, where as his duty as agent require him to buy at the lowest possible price.

(ii) Duty Not to Make Secret Profits

An agent must not make any secret profit or take bribe beyond the commission or other remuneration paid by his principal without the principal’s consent. A bribe is a commission paid to the agent without the principal’s knowledge. In Boston Deep Sea Fishing Co v Ansell (1888) A, a director of X & Co., on company’s behalf contracted for building fishing smacks. He accepted commission on the contract by the shipbuilders. A also received bonus from another company, of which he was also a director, on strength of the orders placed with the company for supplying ice to the fishing smacks. Held, A was liable to account for both the commission and the bonus, although the bonus could never have been received by X & Co.

An agent is accountable to his principal for any profit which he makes by use of his position. This rule applies even where the principal could not have earned profit himself or suffered no loss and may have benefited from the agent’s action. If the an agent in breach of his duty of good faith does make a secret profit or take bribe, the principal may take all or any one of the following actions.

The principal may recover the amount of secret profit from the agent. In Reading v Attorney

General (1951), A , a sergeant in the British Army received large amount of money for accompanying lorries carrying illicit liquors, so that his presence in uniform would ensure that the lorries were not inspected. Held, A had to account to the Crown, his employer the money he had received because he had obtained it by the use of his position.

The principal may refuse to pay the agent commission or other remuneration.

In Andrews v Ramsey & Co. (1903) P employed A to sell certain property for £2,500 and agreed to pay him £50 commission. A told P that he had found a purchaser who was willing to purchase the property at £ 2,100.P agreed and allowed A to take £50 from the deposit. P later learnt that A had also received £20 commission from the purchaser. Held, P was entitled to recover both £20 commission paid by the purchaser and £50 commission paid by him.

The principal may summarily dismiss the agent without notice.
The principal can repudiate the contract.In Armstrong v Jackson (1917) P employed A to

buy some shares for him. A sold his own shares to P, purporting to show that the shares had been bought. Held, P could rescind the contract because A was in breach of his duty to act in good faith.

The principal may recover not only the secret profit made by the agent, but may also recover damages for any loss he sustained through entering the contract. InMahesan v

Malaysia Government Officers Co-operative Housing Society Ltd (1979), A was a director and secretary of a Cooperative Society which bought land at a price of $944,000 from the vendor who had earlier bought it for $456,000. A knew of this but failed to inform the society. After the sale was completed the society discovered that A had received $122,000 as a bribe or secret commission from the vendor. Held, the Society could recover either the bribe or the amount of actual loss suffered by it as a result of entering into the contract.

Also, in Sanford Corporation v Lever (1891) a company invited tender for supply of coal. T agreed with A, the manager of the company to pay him 1s per ton if his tender was accepted. TA as well as 1s damages for the loss they suffered through entering into the contract. accordingly quoted 1s a ton higher than he otherwise would have done. Held, the company could recover 1s a ton received by

Both agent receiving the bribe and the third party paying the bribe are guilty of a criminal offence under the Prevention of Corruption Act.

(iii.) Duty Not to Misuse Confidential Information

The agent must not misuse or disclose confidential information gained as a result of his relationship with the principal. The principal’s remedy is to force the agent to account for the profit made by use of confidential information, or to claim damages for any loss sustained. In Boardman v PhippsT, a trustee and S a solicitor though were never appointed as agents, the courts treated them as such when they made secret profit out of certain dealings with companies involving a reorganisation of shares by exploiting information gained from the relationship of confidence. Held, the information about the value of the shares was the property belonging to the principal and the use of it even though not dishonest, rendered the agentz liable to account for any profit to the principal. (1966)

If the principal fears his agent would pass on confidential information to a competitor or that the agent will destroy confidential information, the principal may apply for an Anton

Pillerinjuctionauthorising the principal’s representative to enter into the agent’s premises to take into custody or remove confidential information

(d) Duty to Render Account

The agent must keep proper accounts of all his dealings on behalf of the principal. He must render accounts to the principal when required. Where he receives money on behalf of the principal, he must keep it separate from his own.

(e) Duty to Act Personally

The agent may not delegate his authority to act on behalf of the principal unless expressly or implicitly authorised to do so. Delegation may take place in case of necessity, or where it is customary or authorised by the principal.

Where delegation is reasonable in the circumstances, then the principal is responsible to the third party for the acts of the sub-agent. However, the agent will be responsible to the principal for sub-agent’s acts, and sub-agent will be responsible to the agent who appointed him.

12.7.2 Agent’s Rights Against The Principal

(a) Right to Remuneration

The agent has a right to claim remuneration for the services he provides, where there is a contract

between him and the principal. The amount of commission and other remuneration dependsentirety on the terms of contract between the agent and the principal. If nothing has agreed, the agent is entitled to what is customary in the particular business. In absence of a custom, the agent is entitled to a reasonable remuneration. A gratuitous agent, however, cannot expect or demand any remuneration.

Whether or not an agent is entitled to commission depends upon the individual facts of each case, and especially the precise wording of the agency contract. In absence of clear and precise wording, the court seems to be reluctant to make the principal liable unless the agent was the cause of a completed contract. InLuxer (Eastbourne) Ltd v Cooper (1941) P instructed A, an estate agent to find a purchaser for his cinemas. The agent contract provided that P should pay a fee of £10,000 “on completion of sale”. A found a prospective purchaser, who was ready, willing and able to purchase subject to contract, but P withdrew from the sale. Held, A was not entitled to commission since the court refuse to imply a term that P must give A the opportunity to earn his commission.

It seems today the courts may be more willing to imply a term in contracts of agency that the principal must give the agent the opportunity to earn his commission. But again it depends upon

the precise wording of the agency contract. InSheggia v Gradwell (1963) the agency contract provided that P, the seller of a property should pay A, an estate agent commission as soon as “any person introduced by us enters into a legally binding contract to purchase”. P later rescinded the contract because of the purchaser’s breach. Held, A was entitled to his commission when the purchaser entered into a binding contract.

In claiming his commission the agent must show he was the effective cause of the transaction entered into by the principal. In Miller v Radford (1903) P employed A to find a tenant or a purchaser for his property. A was paid commission when he found a tenant. After one year the tenant purchased the property and A claimed a further commission. Held, A was not entitled to commission since he was not the effective cause of the second transaction of sale.

The basic rule is that no commission is payable after the agency has been terminated but the courts have on occasions departed from this basic rule where they felt it would lead to unfair result.

In Sellers v London Counties Newpapers Ltd (1951) A enters into a contract of agency under which he was to sell advertising space in a newspaper. He was to be paid a commission on sale. Some of the advertisement he obtained for the news paper were to be placed on a running basis over a period of time. A was later dismissed. Held, A could recover the commission on advertisements which appeared in the newspaper after his dismissal.

(b) Right to Indemnity

The agent has a right to claim indemnity for losses and liabilities reasonably incurred by him in the course of his agency. In Adamson v Jarvis (1827) PauthorisedA, an autioneer to sell goods. PT, the true owner, A had to pay damages. Held, A was entitled to indemnity from P, because the sale was authorised by him. had no right to sell and in an action in tort for conversion by

However, the agent will lose right to an indemnity if he performs his duty negligently. In Davison v Fernandes (1889) P asked A, a stockbroker, the price of some stock ex dividend. A quoted the price, which was cum dividend but negligently failed to tell this to P. Thinking that the price was ex dividend, PauthorisedA to sell the stock. A sold but later had to pay dividend to the purchaser under the rule of Stock Exchange. Held, A was not entitled to indemnity since he performed his duty negligently.

(c) Lien

An agent is entitled to lien over principal’s property which is still in his possession to secure debts arising out of the agency relationship. A lien is a right to retain possession property. The lien does not entitle the agent to sell the property in order to realize the value in satisfaction of the debt. In absence of a contract to that effect or there is a custom of trade the lien only operates in respect of debts arising out of the particular agency relationship, and does cover other debts owed by the principal to the agent.

Intext Question

Describe the rights of agent as against his principal

Take Note

It is important to note that these rights of agent are also duties of principal

12.8 Types of Agent

There are various kinds of agent. They may be classified according to their functions or according to the extent of their authority.

12. 8.1 Classification According to Functions(a) Auctioneers

An auctioneer is agent to sell goods or lands at a public auction. He cannot buy goods or lands on behalf of his principal. An auctioneer can sue for the price in his own name and has authority to receive purchase price. He has a lien over the goods, that is, a right to retain possession until his charges are paid.

An auctioneer has implied authority to sell without a reserve and therefore if he sells below the reserve price specified by the owner, the contract will be binding on his owner principal. If however, he states that the sale is subject to reserve, then by mistake sells below the reserve, the sale is not binding on the owner principal.

(b) Mercantile Agent or Factors

A mercantile agent or a factor is an agent having in the customary course of his business as agent authority:

to sell goods;
to buy goods;
to pledge goods. Pledge means to deposit as security;
to consign goods for the purpose of sale; and
to raise money on the security of goods

In addition he also has implied powers:

to sell in his own name;
to give a warranty, if it is usual in the course of business;
to receive payment for the goods sold, and give valid receipts; and
to grant reasonable credit.

The mercantile agent has lien over the goods in his possession for his charges.

(c.) Brokers

A broker is “an agent employed to make bargains and contracts in matters of trade, commerce or navigation between other parties for compensation commonly called “brokerage”. He differs from a factor or mercantile agent in that

He has no possession of the goods and consequently he has no lien on them
Since he has no possession of the goods, he deal only on credit and debit notes between buyers and sellers
He does not sale or buy in his own name, unless there exists a trade custom enabling him to do so
He cannot sue in his own name on the contract made through his agency
He is not liable to his principal if the buyer fails to pay the price

Stockbroker is a broker who is a member of a stock exchange or other similar institution. He has an implied authority to make contract for his principal subject to the rule of such institutions. The principal is bound by those rules even if he is not aware of them.

(d.)Del Credere Agent

Del credere agent is an agent who sells goods on credit for an additional commission and guarantees to his principal the due payment of the price of the goods sold by him, if the purchaser fails to pay. He is thus a mere surety, and liable to his principal only in case the purchaser makes default. He does not make himself liable to his principal if the buyer fails to take delivery.

(e) Estate Agent

An estate agent is an agent whose business it is to sell or offer for sale real estates for the principal, or to rent houses, or other buildings, or real estate, or to collect rent for others. He may receive deposit from the prospective purchaser either as agent of the vendor or in an independent capacity.

If an estate agent authorised to act for the vendor receives a deposit from a prospective purchaser, he does so as agent of the vendor, unless there is an agreement to the contrary. In that situation the vendor will be liable for the return of the deposit if the agent becomes insolvent or misappropriates the deposit received by him (seeGoding v Frazer, 1966). On the other hand, if a deposit is received by the estate agent not as agent of the vendor but as a stakeholder, the vendor is not responsible for the return of the deposit if the agent vanishes with the deposit (Sorrell v Finch, 1976).

(f) Confirming House

This type of agency occurs in export trade when a supplier receives an order from a customer abroad he would like to have confirmation of that order by a person in the supplier’s country. The confirmer confirms the bargain and undertakes that he will be personally liable if the buyer abroad fails to perform the contract. If the confirmer fails to pay, the supplier can still claim the purchase price from the buyer.

Intext Question

Discuss what type of agent may be appointed to perform the following acts a) To buy a plot of land

b) To sell goods

c) To make a contract of insurance

d) To rent a house

e) To buy shares in a company

f) To auction goods

12.8.2 Classification according to the Extent of Authority

Universal agent is a general agent with extensive powers. He is appointed to do all the acts which the principal can personally do. This kind of agency is to be created by deed in the form of a General Power of Attorney
General agent is an agent who is authorized to act for his principal in all matters concerning business or trade of a particular nature. A third party dealing with a general agent can assume that the agent has power to do all that is usual in the ordinary course of his business or trade. He is not affected by the limitations on the agent’s authority unless he is aware of these limitations.

(c.) Special agent

A special agent is an agent employed to conduct a particular transaction for his principal, or authorized to perform a special act or for a special purpose.

Intext Question

Explain what you understand by universal agent, general agent and special agent

12.9 Termination of Agency

Agency may be terminated by the act of the parties or by the operation of law.

The effect of termination is to bring the actual authority to an immediate end.

12.9.1 By the Acts of the Parties

Where the agency is created by contract between the principal and agent, it may be terminated by agreement between them, just as any other contract. The contract of agency may be rescinded by a fresh contract between the parties. If the agency is created for a fixed period of time it comes to an end after expiration of that time. If the agency is for a particular purpose it is terminated when that purpose is accomplished.
If contract of agency provides that it may be terminated by notice, then the giving of such notice as provided for in the contract will bring the agency to an end. If no period of notice is specified in the agency contract, then reasonable notice must be given. What is reasonable will depend upon the circumstances and facts each case. If the agent is also an employee then proper notice as required by the law must be given. Even an implied agency may be terminated by notice. For example, an authorization to a wife to pledge her husband’s credit for necessaries can be terminated by giving her notice to that effect.
Revocation: As a general rule, the authority of an agent can be revoked at any time by the principal before it has been exercised to bind the principal. If the revocation is in breach of the contract of agency, the agent has a right to claim:
For loss of his commission or other remuneration.
For expenses and liabilities incurred by him.
Other damages if the revocation is unjustified or if no reasonable notice is given.

The principal’s power to revoke the agent’s authority is limited in the following circumstances: (i) If the principal has allowed the agent to assume authority, revocation will only be effective

against the agent, if he knows of the revocation of the authority, or against the third party if the third party has notice of it.

(ii) If the principal has given the agent an authority coupled with an interest, the authority is irrevocable. InGaussen v Morton (1830) a large sum of money was owned by P to A. In

order to pay the debt P gave Apower of attorney to sell certain land and to take the money owned to him from the proceeds of sale. Held, A’s authority was irrevocable since it was coupled with interest. The same rule applies where a power of attorney is expressed to be irrevocable and is given to secure some interest of the agent.

(d) Performance. When both principal and agent have performed their contractual obligations the

contract of agency comes to an end.

12.9.2 By Operational Law

Since agency is regarded as a personal contract it is terminated by death of either party, even where the other party has no knowledge of the death.
Agency terminates when either the principal or the agent becomes insane, since an insane person has no capacity to appoint or act as an agent.

However, the principal will be bound by the contract made by the agent with the third party who has no notice of that incapacity.

In Drew v Nunn (1979) H, the husband authorised his wife W to buy goods on credit from P,H became insane but W continued to buy goods from P, who had no knowledge that H had become insane. Held, P could recover the price of goods supplied to W from H. Subsequently

Bankrupcy.Bankruptcy of the principal imposes legal incapacity and so it would automatically terminate the agency.
The contract of agency is subject to the usual rules of frustration which we have discussed earlier in our lecture on termination or discharge of contract. In Turner v

Goldsmith(1891) A was employed by P, a shirt manufacturer to sell various goods manufactured and sold by P. The contract of agency was for five years. After two years P’s factory was burned down and he closed down his business. Held, the contract not frustrated since P could still supply other goods or goods manufactured by other persons. Accordingly, A was held to be entitled to damages for loss of commission.

12.10 Summary Summary

Agency is the relationship which subsists between two persons, the principal and the agent under which the principal authorises the agent to make contract on his behalf with the third party. The act of the agent, done within the scope of his authority, binds the principal.

An agency may be created in several ways: by express agreement, by implication, by necessity, by ratification and by cohabitation. Where agency is created by express appointment it is said to be agency by express agreement. The law will infer the creation of the agency by estoppel, that is, where a person by his own words or conduct holds out another person as having authority to act for him. Under certain circumstances a person may become the agent of another without having been appointed as such. These cases are known as agencies of necessity. An agency by necessity arises where the agent has acted by reason of a genuine emergency with a view to protect his principal’s property. Where a person has no authority to contract on behalf of the principal or where duly appointed agent exceeds his authority as he has, the contract is not binding on the principal. However, The principal may subsequently adopt or ratify an agent’s unauthorised acts. Such an agency is created by ratification. Agency may also be created by cohabitation. Such an agency may be a form of implied agency by relationship or agency by estoppel or agency of necessity.

An agent may have actual, ostensible or usual authority, Actual authority is the authority given by the principal expressly or by implication. Ostensible or apparent authority is the authority of the agent as it appears to others. Usual authority denotes the authority which the agents of the type concerned usually have in a particular trade or business.

The effects of an agency upon the rights and liabilities of parties in contract with third person depend on whether the agent has revealed the fact of his agency to the third party, or whether the agent has concealed the fact that he is an agent for another person, that is, where the principal is undisclosed.

Where an agent contracts for a named principal, the agent incurs no rights and liabilities under the contract. It is the principal alone who can sue or be sued on the contract.

Where an agent discloses the principal and does not undertake personal liability, he cannot be made personally liable,

Where neither the existence of the principal nor the identity of the principal is disclosed, that is, undisclosed principal, the agent is personally liable on the contract. This is because the third party when dealing with him does not know that he is contracting as agent for someone. The agent can also sue the third party on such contracts. Also, when the principal is discovered he may sue or be sued under the contract in certain circumstances.

The agency relationship creates certain rights and duties between principal an

agent. The duties of an agent are: duty to exercise due care and skill, duty to obey instructions, duty to act in good faith and duty to act personally.

The right of an agent include the rights to claim commission and other remunerations, or indemnity for the loss suffered in the course of agency or to claim lien over the goods in his possession to secure debt arising out of the agency. The right of an agent are the duties of the Principal.

These are various types of agent which may be appointed. Classification according function includes agent such as auctioneers, mercantile agents, brokers, del credere agents, estate agents and confirming house. Another way to classify agents is according to the extent of authority. Such agents are universal agent, special agent and general agent.

An agency can be terminated either by the act of parties or by the operation of law. It can be terminated by agreement between the parties, by notice or by revocation by the principal. It can also be terminated by death, bankruptcy, insanity or frustration.

12.1 Activity

1. Explain an agency relationship.

2. Discuss various ways in which an agency may be created.

3. With the aid of examples critically discuss various duties of an agent.

4. Explain authority of the agent.

5. Discuss the effect of a contract made by the agent on the principal and the third party.

6. Discuss the liability of the agent towards the third party.

7. Explain various types of agent.

8. Describe ways in which an agency may be terminated.

9. Discuss the legal position in the following cases:

(a) Kiama had sent some fruits from Meru to Nairobi by a lorry

belonging to Kentransport Ltd. A landslide occurred at a place half way between Meru and Nairobi. As a result it was not possible to carry on further journey to Nairobi at least for a week. The driver of the lorry therefore decided to sell the fruits at the local market as they were getting bad.

(b) Otieno asked Ombaka, an estate agent to sell his house for a certain price and agreed to pay him two per cent commission for a job. Ombaka, sold the house to Kairu for the stated price but also took two percent commission from Kairu. When sued by Otieno, Ombaka argued that Otieno had not suffered any loss, therefore he was not

liable.

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