Legal frame work:-Agency

Legal frame work

Agency

Definitions of Agent and Principal

“An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is represented, is called the principal”.

The contract which creates the relationship of ‘principal’ and ‘agent’ is called an ‘agency’. For example - X appoints Y to buy ten bags of wheat on his behalf, X is the principal, Y is the agent and the contract between the two is ‘agency’.

General Rules of Agency

There are two important general rules regarding agency, viz:

What one person can himself lawfully do, can as well get it done by any other person. This rule is of course, subject to some exceptions, e.g. in case of acts required to be performed personally like marriage.

What a person does by another, he does by himself. In other words the acts of the agent are, for all legal purposes, the acts of the principal.

Cont..

Who May Employ an Agent? A person  who  is compentent  to contract   may employ an egent.

 Who May be an Agent? The Act lays down that “as between the principal and third persons any person may become an agent”. Thus even a minor or a person of unsound mind can be appointed as agent, but  in such a case the principal shall be liable.

No Consideration is Necessary : No consideration is necessary to create an agency”.

Creation of Agency

An agency may be created in any one of the following ways:

a) Agency by Express Agreement: An agency by express agreement is created when by spoken or written words an express authority is given to an agent. For example - X who owns a shop, appoints Y to manage his shop by executing a power of attorney in Y’s favour.

b. Agency by Implied Agreement: Implied agency arises when agency is inferred from the  circumstances of the case, or from the conduct of the parties on a particular occasion, or  from the relationship between parties.

 Implied agency includes the following:

1. Agency by Estopped: Agency by estopped arises where a person by his words or conduct induces third persons to believe that a certain person is his agent.  The person who induces as such is estopped or prevented from denying the truth of agency. For example - X tells Y in the presence and hearing of Z that he (X) is Z’s agent. Z does not contradict this statement. Later on Y enters into a contract with X believing that X is Z’s agent. In such a case, Z is bound by this contract and in a suit between Z and Y, Z cannot be permitted to say that X was not his agent, even though X was not actually his agent.

ii. Agency by Holding Out: This is a type of agency by estopped. Such agency arises when a person by his past affirmative and positive conduct leads third person to believe that person doing some act on his behalf is doing with authority. For example - X allows Y, his servant to purchase goods for him on credit from Z, and later on pays for them, one day X pays cash to Y to purchase goods. Y  misappropriates the money and purchases goods on credit from Z. Z can recover the price of goods from X because X had held out before Z that Y is his agent.

iii. Agency by Necessity: Agency by necessity arises under the following two conditions:

a. There is an actual and definite necessity for acting on behalf of the principal, and

b. It is impossible to obtain the consent of the principal. For example - X consigned

some vegetables from  Mombasa to  kisumu  by a truck. The truck met with an accident. The vegetables being perishable were sold by the transporter. This sale is binding on X. In this case the transporter became an agent by necessity.

Cont..

c) Agency by Ratification: Where acts are done by one person on behalf of another, but without his knowledge or authority, the latter may elect to ratify (adopt and accept) or to disown such acts. If he ratifies them, the same effect will follow as if they had been performed by his authority. Ratification may be express or implied in the conduct of person on whose behalf the acts are done. For example - A, without authority, buys goods for B. After wards B sells them to C on his own account. B’s conduct implies a ratification of the purchases made for him by A.

d) Agency by Operation of Law: Agency by operation of law is said to arise where the law treats one person as an agent of another. For example - on formation of a partnership, every partner becomes the

Meaning of Sub Agent

“A sub-agent is a person employed by, and acting under the control of, the original agent in the business of the agency Thus a person employed by an agent is called sub-agent.

 Meaning of Substituted Agent: An agent names or appoints a substituted agent at the request of the principal and thereafter drops out altogether from the scene. Such person is an agent of the principal.

Duties of Agent

An agent has the following duties towards the principal:

a) To follow principal’s directions or customs.

b) To carry out the work with reasonable skill and diligence.

c) To render accounts.

d) To communicate, in case of difficulty.

e) Not to deal on his own account in the business.

f) Not to make any profit out of his agency except his remuneration.

g) On termination of agency by principal’s death or insanity to protect and preserve the interests entrusted to him.

h) Not to delegate authority.

Right of Agent

An agent has the following rights against the principal:

a) To receive remuneration.

b) Retainer - out of any sums received on account of the principal.

c) Lien - to retain goods. Agent has a particular lien unless the contract provides otherwise.

d) To be indemnified against consequences of lawful acts.

e) To be indemnified against consequences of acts done in good faith.

f) To compensation for injuries sustained by him due to principal’s neglect or want of skill.

g) Stoppage of goods in transit.

Cont..

Duties of Principal: The duties of principal are indirectly the rights of an agent.

Rights of Principal : The duties of principal are indirectly the rights of an agent.

Termination of Agency

By Act of Parties

• Agreement
• Revocation by the Principal
• Renunciation by the Agent

By Operation of Law

Completion of Business of agency

Expiry of time

Death of Principal or Agent

Insolvency of the Principal

Destruction of the subject matter

Principal or Agent becoming alien enemy

Dissolution of Company

end

Thank  you

Compiled by Mr. Henry Muchiri