LAW OF AGENCY – PART ONE

1.0 INTRODUCTION

The Law of Agency is simply the law or legislation that relates to or governs the relationship between
a person and his agent (being a person who acts on the other’s behalf). In other words, the Law of
Agency is that law that governs the relationship between people and those who act on their behalf.
Agency relationships have existed amongst men from time immemorial for which reason the
importance of this law can never be over emphasised. The agency relationship can be said to date back
to creation when God having created the world and being in need of one to act on his behalf to rule
over his creation, created man and delegated him as his agent here on earth. In the same way that even
God needed someone to act on his behalf, so have men over the ages needed others to act on their
behalf and even bind them especially in transactions that are commercial in nature. Knowing that issues
can ensue from every human relationship some of which may not be palatable, the law has thus been
created to govern agency relationships.

Again, with the advent of globalisation the interaction and integration among people, companies, and
governments worldwide has greatly heightened. This has been made possible by advancement in
technology. Both of these have greatly impacted on the nature of commercial transactions thereby
creating a whole range of intricate and specialized commercial transactions that may require new skill
sets in order to engage in business in the commercial terrain. For instance, with the combined effect of
globalisation and advancement in technology, a peasant Kenyan farmer may sit in Eldoret and transact
business with a buyer in Malaysia. They may never meet each other physically (and do not even need
to) by the aid of Information Communication Technology (ICT) as long as they have the requisite ICT
skill set. Where the farmer devoid of ICT skills finds the ICT aided transaction to be too complex, he
may need someone with that skill set to act on his behalf as his agent. People generally need agents
with specialised skills in order to do business in terrains they cannot act for themselves, even in
common private transactions. A man, for example, may engage the services of a broker to effect an
insurance contract or a sale or purchase of shares in a company. To this end, agency has assumed great
relevance in modern day business practice.

Another consideration for the appointment of agents by owners (principals) has been said to be because
all men are not equally talented in doing business. This inequality may be seen in terms of their different
technical knowledge as well as their skill and experience. For this reason, Agency has been described
as a ‘miracle’ since it enables a person who otherwise lacks capacity to do something by way of a
commercial transaction to do same with the help of another person called his agent. To this end, it is
inevitable that a person who is called a principal would be in need of the services of another called the
agent, for the singular reason that such other should act on his behalf while transacting business with
third parties.

2.0 DEFINITION OF AGENCY

Like many other legal concepts, there is no definition to end all definitions of Agency. Nonetheless,
there are several definitions of Agency, some of which will be discussed here. For instance, the Blacks’
Law Dictionary defines Agency as ‘a fiduciary relationship created by express or implied contract or
by law, in which one party (the agent) may act on behalf of another party (the principal) and bind that
other party by words or actions.’ By this definition, the agency relationship creates duties as between
the parties, one of which is that the agent do something or say something on behalf of his principal and
in so doing or saying, bind him.

Again, Agency has been defined:

A relationship between a principal and an agent in which the principal confers his or her
rights on the agent to act on principal’s behalf. Such a relationship is based on an agency
contract. The rights and duties of the agent and principal are in accordance with the express
or implied terms of the contract.

Dale Baze has also given a definition of agency which covers not just what agency means but goes into
the responsibilities, obligations, and duties of the agent with regard to dealing with third parties.
According to him:

An agency is the legal relationship whereby one person, an agent, is authorized by

another, a principal, to act on that person’s behalf, and is empowered to do what the
principal could lawfully do in person. The axiom of agency is: “He who acts through
other acts himself.” The principal thus assumes all the responsibilities of the acts of the
agent in altering legal relationships with third parties on his behalf. In so dealing, an
agency is formed and brings into effect the law of agency, which prescribes certain
responsibilities and liabilities to the principal and the agent. These rules of law also
delineate responsibilities, obligations, and duties with regard to dealing with third parties.
For Sigitas Mitkus and Vaidas Jurkevičius, ‘the law of agency deals with situations where one person
enters into legal relationships with another person by acting not personally but through an
intermediary.’ Though the definition appears simple, it essentially highlights that an Agency
relationship is a creation of law under which one party acts on behalf of another in relation to others.
Another scholar who has pronounced on Agency is Fridman, who defined Agency as:

The relationship that exists between two persons when one, called the agent, is considered
in law to represent the other, called the principal, in such a way as to be able to effect the
principal’s legal position in respect of strangers to the relationship by the making of
contracts on the disposition of the property.
The Courts have also pronounced on what is Agency in a plethora of cases. in Dr.Tunde Bamgboye v.
University of Illorin & Anor, the court per defined an Agent to mean ‘more or less the same thing as a
delegate.’

Agency is a relationship in which one person, agent, is permitted to act on behalf of and under the
directive and control of another, the principal. It is a situation whereby the principal expressly or
impliedly consents that the agent should act on his behalf so as to affect his relationship with third
parties and the agent similarly consents to so act.

In every agency relationship, it is of utmost importance that the principal has full capacity to enter into
the contract. If the principal does not have the contractual capacity, he cannot appoint or authorise
someone to act for him. An agent, however, may be a minor and this is so because the agent is not
himself a party to the contract, the contract is not personally his but that of the principal. It is the
principal and not the agent who can sue and be sued on the contract. It is pertinent to note, however,
that where an agent contracts for an undisclosed principal, that is, the principal whose name and/or
existence is not disclosed at the time of making the contract, the agent can be sued on the contract even
though the contract is not his.

2.01 Key Legal Issues from the Definition of Agency

As earlier said, no one may ever be able to proffer a definition to end all definitions of Agency in law.
This problem of a lack of an all-encompassing definition is not peculiar to ‘Agency’ as it traverses
virtually all legal concepts and even the concept of law itself. Against this background, any definition
of Agency in law or any relationship that may be said to be an Agency relationship in law should have
the following features:

1. It is a legal relationship in that it is recognised in law.

2. It exists between two people one of which is called the principal and the other the agent.
3. The relationship is borne out of an agreement which could be express or implied.
4. Within the relationship, one party (the agent) undertakes to act on behalf of another party (the
principal) in relation to a third party or parties.
 5. Within the relationship, one party (the principal) agrees to be bound by the actions taken by the
other party (the agent) on his behalf in relation to a third party or parties.
6. While it is compulsory the principal has contractual capacity, same is not required of the agent.

2.02 The Legal Character of an Agency Relationship

This connotes the distinct legal features in Agency that make it different and distinct from other forms
of relationships in law. These include:

1. It is rooted in the law first in that it exists only where the law considers it to have arisen,
secondly in that the agent’s actions which affect the legal position of the principal are within
his lawful authority and finally in that, such actions affect the legal position of the principal.
2. It creates a fiduciary relationship between the principal and the agent.
3. Where it exists, it creates two types of relationships the first as between the principal and the
agent, while the second is that between the principal, the agent and the third party. The former
could be described as ‘internal’ and the latter ‘external.’
4. It could be consensual (that is formed by agreement or consent of the parties being the principal
and the agent) and most often so. But sometimes it may not as in the case of Agency by necessity
or Agency by Estoppel.
5. Application in situation where the principal’s legal position is affected;

2.03 The Legal Implications of Agency Relationship

By this connotes the effect of or that which ensues from an Agency relationship. Naturally, Agency
relationship as any other type of relationships are formed for a purpose. To this end, what should ensue
from an Agency relationship is the purpose for which it was created. Thus, the legal implications of an
Agency relationship include:

1. Any act done by the agent on behalf of the principal binds him.
2. It creates privity as between the principal and the third party who is the subject of the agent’s
act. It is by virtue of this that rights and liabilities drawing from such act to the third party
devolve to the principal.

2.04 An Agent Distinguished from similar Positions

An Agent may be confused with positions having similar characteristics. But there exists distinct
features in an Agent which may not exist in such similar positions. It is in fact such distinctive features
that serve to distinguish, set apart and make different the position of an Agent. Such similar positions
include the positions of a Servant and a Trustee. It is for this reason that a distinction is being made
between the position of an Agent and such other positions.

2.041 An Agent Distinguished from a Servant

A servant may be confused with one who is an agent though a servant is not akin to an agent. According
to Blacks’ Law Dictionary however, a servant is ‘a person who is employed by another to do work
under the control and directions of the employer. For Wood, a servant is:

A person who, by contract or operation of law, is for a limited period subject to the
authority or control of another person in a particular trade, business or occupation… The
word servant, in our legal nomenclature, has a broad significance, and embraces all
persons of whatever rank or position who are in the employ, and subject to the direction
or control of another in any department of labor or business. Indeed it may, in most cases
be said to be synonymous with employee.
From the definitions above, it is clear that essentially the difference between a Servant and an
Agent lies in;

i. Relationship Type: What the parties are to each other in their relationship, in the first, it
is a servant to master relationship while in the latter it is an agent to principal relationship.
ii. Number of Masters/Principals: While it is usual for a servant to serve only one master,
(and indeed it is said you cannot serve to masters, it is either you love the one and hate
the other, or else he will hold to the one, and despise the other) but an agent can be an
agent to several principals at the same time.

iii. Assignment of Duty: A servant in unique circumstances may assume the role of an agent and
act in that capacity. For instance, a manager of a company is essentially a servant of the
company, but in dealing with certain matters on behalf of the company with third parties, he
may act as an agent as his acts bind the company as regards such third persons. But an
independent Agent who is not employed as a servant does not assume the role of a servant as
each of his acts on behalf of his principal binds the principal in relation to third parties.
iv. Control and Supervision: The extent of the control that is exercised over them. While a
servant is under the direct control, authority, supervision of the master, an Agent is merely
to act within the lawful instructions of his principal.
 v. Authority to create contractual relationship: Beyond merely acting on behalf of the
principal, an Agent also has the authority to enter into contractual relations that bind the
principal and a third party. A servant does not have a similar authority.

vi. Mode of Remuneration: The way a Servant is remunerated for his work is different from the
way an Agent is also remunerated for the work done. While the remuneration of a servant is
paid in terms of salary or wages, an Agent is more often than not remunerated by way of
commission accruable on the volume of business transacted.
vii. Liability: The nature of liability suffered by a principal and a master are equally different. For
instance, a principal is only liable to third parties on contracts made on his behalf by his agent
within the scope of his authority as the principal’s agent. On the other hand, a master is liable
for any wrongful act of his servant insofar as it is done in the course of the servant’s
employment.

2.042 An Agent Distinguished from a Trustee

A Trustee may equally be confused with an Agent yet both relationships are not the same. A Trustee
has been defined as ‘An individual or corporation named by an individual, who sets aside property to
be used for the benefit of another person, to manage the property as provided by the terms of the
document that created the arrangement.’ In sum, a trustee is the one made the manager so to say, of a
trust property.

Below are the basic differences between an Agent and a Trustee:

1. A Trustee is derived from a trust relationship while an Agent is derived from an agency
relationship.
2. A Trustee is made to manage a property while an Agent may not have any authority over the
principal’s property as the subject matter of the agency may not relate to it.
3. The Trustee is usually vested with the legal title to which the trust relates while the Agent is never
vested with the title to which the agency relates.
4. The acts of the Trustee over the trust property are done in his name whereas though the Agent’s
acts are binding on the principal, he acts in the name of the principal.
5. It is not always the case that a trust is a contractual relationship on the other hand, an agency is
more often than not, a contractual relationship.
6. More often than a trust is irrevocable whereas, an agency is revocable safe it is with an interest.
3.0 CLASSIFICATION OR TYPES OF AGENTS

Scholars have employed various grounds upon which to classify Agents into varying types. For
instance, some scholars classify Agents first according to the extent of the principal’s rights of control
and the nature of the acts to be performed by the agents, secondly according to the liability imposed on
the Agent and finally in terms of the particular functions performed by agents. Be that as it may, Agents
are generally classified into three major types. These are:

i. General Agent
ii. Special Agent; and
iii. Mercantile Agent

3.01 General Agent

According to the Blacks’ Law Dictionary, a general agent is one who is ‘authorised to transact all the
principal’s business of a particular kind or in a particular place.’ In other words, when an agent is
employed to conduct a series of duties which are within the scope of the assignment given to him, he
is a general agent. Under such arrangement, the agent employed and authorised to carry out a particular
business is not required to receive additional authorisation for each transaction he conducts on behalf
of the principal over such a business. To this end, even third parties are prone to assuming that such an
agent has the authority to do all that is usual for a general agent to do within such transactions. Thus,
any private restrictions on the agent’s authority by the principal does not operate to affect the third
party. Examples are Solicitors, sales agents and the like.

3.02 Special Agent:

According to the Blacks’ Law Dictionary, a special agent is one ‘employed to conduct a particular
transaction or to perform a specified act.’ An agent may be employed and authorised to perform a
specific task such as selling real property (estate agent). Where an agent is to perform a specific
assignment, he is called a special agent. In this regard, he is authorised to perform a single transaction
and once the transaction is carried out, the agency ends. Against this background, third parties are not
prone to assume that he has unlimited authority to which end, ultra vires act done by the agent cannot
bind the principal.
3.03 Mercantile Agent

The Blacks’ Law Dictionary defines a Mercantile Agent as one who is ‘employed to sell goods or
merchandise on behalf of the principal.’ Section 1 of the Factors Act also defines a mercantile agent
as:

A person who, having in the customary course of his business as such agent, authority
either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to
raise money on the security of goods.

By this definition, the following are included;

i. Brokers Factors,
ii. Del credere Agent
iii. Auctioneers
iv. Partners; and
v. Bankers

3.03.1 Brokers

A broker is an agent authorised to discuss prices, conditions or terms with respect to a business
transaction with a third party in order to make or procure a contract on behalf of his principal. The
broker does this and is paid compensation or brokerage. The compensation is called commission. Real
estate agents and stock brokers are examples.

A broker, unlike a factor, has no possession of the goods. Thus, he has no lien on them (except, perhaps,
an insurance broker who has a lien on the policy of insurance for his general balance), and as such can
only sue in his principal’s name. In other words, a broker does not take his principal’s goods in his
possession; he cannot sue third parties in his own name unless permitted by a custom of a particular
trade. A broker can be an agent for both the buyer and the seller. It follows that brokers and factors are
mercantile agents, the main distinction between these two classes of agents is that a broker is an agent
who is authorised by his principal to negotiate and conclude a contract for the sale of goods but without
ever having been entrusted with possession of them, whereas a factor is entrusted with the possession
of goods for the purpose of sale.
3.03.2 Factors

A factor is an agent authorised to sell goods of his principal for compensation. The principal allows
the factor to be in possession of and control over the goods. The factor is authorised to sell the goods
and receive payments in his own name. He has a general lien on any goods that fall into his possession
as a factor and also on their purchase for the amount due to him as remuneration from the principal.

3.03.3 Del Credere Agent

A del credere agent is someone who sells the goods of his principal on credit and assures or firmly
promises his principal that the purchasers will pay for the goods. If the purchaser fails, the agent will
have to pay for them. A del credere agent does this and is paid compensation (del credere commission)
on the sale.

This entails that a del credere agency is a contract of indemnity, in which the agent merely promises
to indemnify the principal should the third party fail to pay for the goods sold or in the event of the
third party becoming insolvent (that is, he is merely a guarantor of the buyer’s solvency). He is,
therefore, a surety of the buyer and his liability only arises contingently on the buyer’s failure to pay
up.

3.03.4 Auctioneers

An auctioneer is an agent who sells the goods of his principal at a public auction. The purchase price
is paid to him. Where the purchaser fails or neglects to pay, the auctioneer can sue for the purchase
price in his own name.

3.03.5 Partners

A partner has been said to be one of two or more persons who jointly own and carry on a business for
profit. According to the Partnership Act, each of the partners is an agent of all the other partners in the
partnership and at the same time, the principal of all the other partners in the partnership. To this end,
every partner is said to be ‘the agent of the firm for the business of the firm.’

3.03.6 Bankers

In a way a banker could be an agent of the customer even though the general relations between a banker
and a customer are described as that between a debtor and creditor. A banker becomes the agent of the
customer where he collects cheque to pay out monies as indicated by the customer upon the cheque,
buys or sells securities, interests, dividends, bills of exchange or promissory notes on behalf of his
customer. In such circumstances, the banker has a general lien on all the securities of the customer in
his possession in the event that the latter fails to pay him his balance.

4.0 FORMATION OR CREATION OF THE RELATIONSHIP OF PRINCIPAL AND AGENT

The relationship of principal and agent may be created or formed in any of the following ways.

4.01 Agreement (Express or Implied)/Contract

An agency relationship can be formed or created by the agreement of parties, one being the principal
and the other party agreeing to act as the agent to the principal. Such agreement may be termed Express
where a principal does a positive act to appoint an agent. But in other circumstances, the agreement
may be termed implied where a party acts as an agent for another without prior agreement and such
other though having the opportunity to refuse same failed to do so. In such circumstance, the court
would imply the existence of agency relationship by the conduct of the parties as was in Biggar v Rock
Life Insurance. The agent may be appointed orally or by letter or instrument of appointment or by
deed, for example, Power of Attorney. Where an agent is empowered or authorised to execute a deed,
for instance conveyances or leases, the authority to so act must be by deed. This was the position of
the court in Abina and Ors v Farhat same was upheld in Vulcan Gases Ltd v G.F. Industries.

Where an agency relationship is through an agreement, such agreement must possess all the essential
elements of a valid contract to be sustainable or maintained. In determining whether a valid contract of
agency subsists or has been made, the general rules of law of contract are applicable. Thus, there must
be an offer and an acceptance of that offer and the purpose of the contract must not be unlawful or
against public policy. Just like other contracts, an agency agreement can be vitiated by frustration,
illegality, fraud, mistake, impossibility, duress and undue influence. Consideration is, however, not
essential to the creation of an agency relationship, for one can be a gratuitous agent. The court gave
voice to this in Isa v Saje.

4.02 Agency by Ratification

This is a situation whereby the principal adopts an act or contract of an agent who did not have the
authority to act or who exceeded his authority. In other words, it is an act by the principal showing the
intention to be bound upon a previously unauthorised contract. This kind of agency relationship is
expressed in the Latin maxim omnis ratihabitio retrotrahitur et mandato priori aequiparatur.
It is gratifying to note that for there to be a valid ratification, three conditions must be present. These
are: (a) The act must be on behalf of the principal; (b) There must be a competent principal; (c) The
principal must be legally capable of doing the act himself. These conditions were captured in Firth v
Staines1where Wright J spelt out the conditions thus:

To constitute a valid ratification, three conditions must be satisfied. First, the agent whose
act is sought to be ratified must have purported to act for the principal; secondly, at the time
the act was done the agent must have had a competent principal and thirdly, the principal
must be legally capable of doing the act himself.
The above statement was approved and applied in the case of Ojugbele v Olasoji. It is pertinent to note
that the principal may ratify the contract only if the agent made it clear to the third party that he was
acting for someone and the agent must have disclosed the name of his principal to the third party. The
effect of ratification of the agent’s act is that the parties concerned are put in the same position as that
in which they would have been if the act ratified had been previously authorised.

4.03 Agency by Estoppel

An agency relationship is created by estoppel where a supposed principal intentionally or otherwise

causes a third party to believe that another person is his agent and the third party so relies in dealing
with the supposed agent. The principal will be estopped from denying the existence of an agency
relationship between him and the supposed agent. In such a situation, the supposed principal will be
bound by an act or omission of the supposed agent to the same extent as if an agency relationship has
existed between them. This position was affirmed in the case of Lukan v Ogunsusi where it stated that:

When a person behaves in such a way as to lead another person to believe that he has
authorised a third person to act on his behalf and that other person in such belief enters into
such transaction with the third person within the scope of such ostensible authority, the first
mentioned person would be estopped from denying the fact of the first person’s agency. It
would be immaterial whether the ostensible agent had not the authority whatsoever in fact;
it would also not matter whether the ostensible agent acted in excess of his usual authority.
This kind of agency relationship is based on the principle of holding out by the principal to the third
person or upon the apparent or ostensible authority of the agent.

Agency by estoppel may arise in a partnership where a partner does anything which is within the scope
of the partnership business. He would be taken to have acted for and on behalf of the other partners in
the business. Again, the law will imply an agency relationship in the case of co-habitation. Where a
man and a woman co-habit, it is implied that the woman has the authority of the man to pledge his
credit for necessaries, except where the man is able to prove that the woman had enough money to
purchase the necessaries.

Also, if a person conducts himself in a manner as to make others believe that he has authorised another
to enter into contracts on his behalf, he will be estopped from denying such authority and therefore be
bound by any such contract as if he had actually authorised it. A classical judicial statement of the
doctrine of agency by estoppel is found in Saul Raccah v Standard Co. of Nig. Ltd. In that case, W was
employed to act as agent for the defendant for the purchase of produce to the knowledge of the
defendant’s representatives. Subsequently, its representatives instructed W not to purchase produce any
more for the defendant. Notwithstanding this instruction, W induced the plaintiff to enter into a contract
to sell produce to him. The plaintiff had previously dealt with ‘W’ as agent for the defendant and had
believed that W still retained the authority of the defendant. The plaintiff in the action claimed from the
defendant the contract price of the produce supplied to W. It was held that the claim succeeded. The
court observed as follows:

…where any person by words or conduct represents or permits it to be represented that

another person has authority to act on his behalf, he is bound by the acts of such other
person with respect to anyone dealing with him as an agent on the faith of such
representation to the same extent as if such other person had the authority he was so
represented to have.
4.03.0 Essential Elements of Agency by Estoppel

There are certain essential elements that must be present and specifically proved for a plea of agency
by estoppel to succeed. These elements are enunciated in Rama Corporation v Proved Tin and General
Investment Ltd which is a locus classicus of the essential elements of agency by estoppel where Slade
J said:

…a person cannot call in aid an estoppel unless three ingredients are present (1) a
representation (2) a reliance on the representation (3) an alteration of his position resulting
from such representation.
Aside the above (the above 3 elements), it is pertinent to note that a party seeking the aid of estoppel
must himself have acted honestly and without knowledge that the supposed agent had no or had
exceeded his authority, if that being the case. This is because estoppel is an equitable remedy and the
equitable maxim is that he who comes to equity must come with clean hands and must have acted
without blemish.
4.04 Agency of Necessity

Agency of necessity is created where the law gives authority to a person to act for and on behalf of
another even though the two of them did not agree to such an agency relationship. This usually happens
where the agent is under a legal or moral duty to act.

For an agency relationship to be created by necessity, there must be an emergency warranting the agent
to act the way he acted and it must have been impossible to get in touch with the principal so as to
receive instructions from him. Again, the agent must have acted in good faith. An example will suffice.
There is a ghastly motor accident along Thika Road leaving Senenge deeply unconscious. Senenge’s
husband, Aondosoo, is not aware of the accident. Kwaghfan, a passer-by who does not even know
Senenge and her husband, took her to the General Hospital, Thika for treatment. The medical bill is
Kshs. 50, 000.00 only. Kwaghfan is Aondosoo’s agent of necessity and he, Aondosoo, is bound to pay
the Kshs. 50, 000.00 even though he did not authorise Kwaghfan to take his wife, Senenge, to the
hospital.

5.0 THE AUTHORITY OF AN AGENT

The authority of an agent may be express (actual), implied or apparent.

5.01 Express or Actual Authority

An agent has an express authority of his principal where the principal has by words of mouth or a
written instrument, for instance, a Power of Attorney, permitted the agent to enter into a contract with
a third party on behalf of the principal. Where an agent is given such express authority, an act done by
him which is within the limits of the authority so given will bind the principal and the third party. The
act done by the agent is as stipulated in the agency agreement.

5.02 Implied Authority

Implied authority is also known as apparent or ostensible authority. It is an authority that is deduced
from the actions or behaviour of the parties without express authorisation. Here, the principal may be
bound by third parties because the agent appears to have authority, though as between principal and
agent there was in fact no authority and normal consequences of such authority did not arise. Implied
authority may also arise where an agent who has been authorised to perform a particular task goes ahead
to take some incidental actions in relation to the task he was employed to perform. An illustration will
suffice. A has a petrol filling station and has employed B to sell petrol. In the course of this work, the
pump develops a fault. B has invited C to repair the pump. A is bound to pay C and this is so because
B has A’s implied authority to employ someone and in this case C to repair the pump. The action of B
contracting with C for the repair of the pump is incidental to the actual authority B has to sell the petrol.

6.0 RELATIONSHIP BETWEEN PRINCIPAL AND AGENT

The agency relationship is governed by the terms of contract created by the parties. Where a party
breaches any of the terms of the contract, he is liable to the other party for such a breach. Beyond the
duties created by the terms of the agency contract, the law imposes some duties upon the agent and the
principal. These are considered hereunder.

6.01 Duties of Agent to Principal

These entail the legal obligations the Agent has towards the principal, the breach of which makes him
liable to the Principal. These include:

i. Duty to Perform
ii. Duty of Care and Skill
iii. Duty of Loyalty or Obedience
iv. Duty to Keep Account
v. Duty to Notify the Principal

6.01.1 Duty to Perform

An agent is under the obligation to carry out the duty contained in the agency agreement. Where the
agent fails or neglects to execute his agreement in accordance with its terms, he may be in breach of
the agency and therefore liable to the principal for the breach. If, however, he performs such duties
carelessly or in an imperfect manner and thereby causes loss to his principal, he may in addition be
liable for negligence. Such liability may take the form of an action for damages for the loss suffered by
the principal or an indemnity or contribution from the agent in favour of the principal.

The agent is, however, not obliged to perform the terms of his agency if these are illegal or null and
void. If he fails to perform them at all, he would not be liable for non-performance. If he performs
improperly or negligently, he would nonetheless not be liable to the principal. In Cohen v Kittle, the
plaintiff employed the defendant to place bets on commission on his behalf. The defendant failed to
make certain bets pursuant to the plaintiff’s order and the plaintiff sued him for breach of contract as
his agent. In his action, he claimed as damages, the excess of gains over losses which should have been
received by the defendant had the bets in question been placed after deducting the amount of his
commission. It was held that as by section 18 of the Gaming Act, 1845, the bets would not have been
recoverable at law. The plaintiff could not therefore maintain an action.

If an agent is a gratuitous agent, he will not be liable for breach of duty to perform. However, if he
elects to perform such a duty, he would come under a duty of care when performing and thereby may
become liable for negligent performance.

6.01.2 Duty of Care and Skill

In executing the terms of the agency, the agent must exhibit utmost or reasonable care, skill and
diligence. He must exhibit high standard of performance and must not be careless. The agent must
handle the goods of the principal properly so that they are not destroyed.

6.01.3 Duty of Loyalty or Obedience

An agent must promote the interest of his principal. He must not do anything that is in conflict with the
interest of his principal. In this regard, the agent must not disclose confidential information about the
principal and must not compete with the principal. He must also not make secret profits.

The duty of loyalty also requires the agent not to use confidential information acquired in the course of
the agency to the disadvantage of the principal. Where, to the knowledge of the third party, the agent
has allowed his interest to conflict with his obligation to his principal, the contract is voidable at the
option of the principal.

6.01.4 Duty to Keep Account

An agent is under a duty to keep accurate accounts of money and property received or spent by him on
behalf of the principal. The duty to account involves keeping accurate records of amount of money
involved in every transaction, dates of transaction, not having to join his money with that of his principal
and not to misuse the property belonging to the principal. The Courts have stressed this duty when it
held that it is the duty of every agent to keep the money and property of his principal separate from his
own and that of any other person.
6.01.5 Duty to Notify the Principal

The agent is under a legal duty to keep the principal abreast with important information he acquired
from third parties while acting on behalf of the principal. The duty of notification is essential
considering the fact that whatever information acquired by the agent in the course of the agency is
deemed to have been acquired by the principal.

6.02 Duties of Principal to the Agent

Where the agent has discharged his duties to the principal, the latter is under a corresponding duty to
do the following.

6.02.1 Compensate the Agent

The agent is entitled to remuneration or compensation for work done on behalf of the principal. Where
the agent and the principal have agreed on the remuneration to be made, the principal is bound to pay
such remuneration. Where there is no such agreement, the law requires the principal to pay what is
reasonable.

6.02.2 Reimburse or Indemnify the Agent

Where the agent has expended his own money on behalf of the principal in rendering his services, the
principal is under a duty to reimburse or indemnify the agent. The principal will be bound to perform
this duty only if the expenses incurred by the agent were authorised by the principal within the scope
of the agency and necessary to discharge the duties of the agent in the course of the agency.

6.02.3 Duty to Protect the Agent

The principal is under a duty to provide safe working conditions in order for the agent not to be injured
while acting for and on behalf of the principal.

7.0 REMEDIES FOR BREACH

The breach of agency relationship may give rise to a claim for damages or other remedies available to
the innocent party. The innocent party may be the principal or the agent and the remedies available to
either of the parties may depend on the terms of the agency agreement, the nature of the breach and the
circumstances of the particular case. These remedies are discussed hereunder.
7.01 Remedies Available to the Principal

These remedies include the following:

7.01.1 Dismissal

The principal may bring the agency relationship to an end or otherwise dismiss the agent from his
employment without notice due to a breach of the agency agreement. In an action of the agent for
wrongful dismissal or for indemnity, the principal may set up the agent’s breach as a complete defence
to the action.

7.01.2 Rescission and Damages

The principal may also rescind any contract made on his behalf without authority. Additionally, the
agent may also be accountable to the principal for any damage resulting from the breach and may be
required to refund any secret commission or profit made or any other advantage obtained therefrom.

7.01.3 Action for Account

The principal may take an action to compel the agent to render an account of all his dealings on his
behalf in respect of their agency relationship. The agent may also be made to account for any money or
other property had and/or received on behalf of the principal in the process of executing the terms of
the agency.

7.01.4 Action in Tort

The principal may in addition sue the agent for conversion where the agent had received property on
his behalf and has misappropriated or misused it. The principal may also institute an action in
negligence based on the negligent performance or discharge of duties by the agent provided the agency
relationship is not contractual.

7.01.5 Private Prosecution

The principal is also entitled to take out a direct criminal summons against the agent where the agent’s
conduct, act or omission is criminal in nature. This will be in addition to the principal’s remedy in
damages.
7.01.6 Withholding of Commission or Remuneration/an Action to Recover Same

The principal may refuse to pay the agent his commission or other remuneration in connection with the
transaction or to sue for the recovery of any commission already paid to the agent. In Andrews v Ramsay
& Co, ‘A’ instructed ‘R’ to sell a property and agreed to pay him fifty pounds commission. R sold and
received one hundred pounds from the purchaser as deposit, of which he paid fifty pounds to A,
retaining the other fifty pounds in payment of his commission with A’s consent. A learnt that R had
also received twenty pounds as commission from the purchaser, and sued to recover the twenty pounds
and also the fifty pounds he had paid to R. It was held that he was entitled to recover both sums from
R.

7.02 Remedies Available to the Agent

If the principal is in breach of any agency agreement or any term thereof, the agent is entitled to and
may claim any of the following remedies.

7.02.1 Action for Damages

The agent may sue the principal to recover any loss or injury he may have suffered as a result of the
principal’s failure to perform any of his duties under the agency relationship. The agent may also sue
the principal and claim damages for the principal’s failure to pay him any agreed remuneration or
commission.

7.02.2 Right of Set-off

In an action of the principal against the agent, the agent may claim a right of set-off or counter claim of
any amount due to him from the principal by way of remuneration, indemnity or reimbursement. This
must be specifically pleaded by the agent in his defence on the claim by the principal.

7.02.3 Right of Lien

The agent has a right of lien on the property, goods or chattels of his principal in his lawful possession
or custody in respect of and up to the amount of his claim for remuneration, losses, liabilities and
expenses lawfully incurred and for advances made in favour of the principal. This right is subject to
any agreement between the principal and the agent.

Two types of lien are recognised under the law. These are the general lien and particular lien. A general
lien enables the agent to retain his principal’s property, chattels or goods until any sum due to him by
the principal is paid. A particular lien only enables an agent to retain such property, chattels or goods
pending payment of any sums due in respect of that property, chattels or goods.

7.02.4 Right of Stoppage In-transitu

Where the agent stands towards his principal in the position of any unpaid seller of goods, he may
exercise the right of stoppage in-transitu against the goods of his principal. He stands in such a position
where having bought goods for his principal, he pays the seller with his own money or incurs a personal
liability to the seller for the price.

7.02.5 Other Remedies

The agent may demand an account by the principal where there is reciprocal indebtedness by the parties
to each other. He may also be entitled to withhold further performance of the terms of the agency where
there has been a continuing breach by the principal.

Also, where an agent in the course of executing the terms of his agency becomes possessed of property,
goods or chattels or money to which conflicting claims have been made by his principal and a third
party, he may claim relief by way of inter-pleader summons. If he delivered the same in accordance
with the decision of a competent court, he incurs no personal liability to his principal.