LAW OF AGENCY NOTES-Business Law - University Education and Exams

LAW OF AGENCY NOTES

Agency law is special branch of the law of contract. Ac cording to the
provision of the law of contract Act (Cap. 23), the English common law
of contract is applicable in Kenya. The date of reception of the common
law of contract of England is 12th August 1897. English decisions after
this date are only of persuasive authority. the agency law of England
based on common law of contract is also applicable in Kenya.

6.1 Introduction

“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 is
done, or who is represented, is called the principal”. The contract
which creates the relationship of ‘principal’ and ‘agency’ is called an
‘agency’ thus where A appoints B to buy ten bugs of sugar on his behalf,
A is the ‘principal and B is the ‘agency’ and the contract between the
two is the ‘agency if, pursuance of the contract of agency, the ‘agent’
purchase the bags of sugar from C, a wholesale dealer are brought into
direct contractual relations.

Under a contract of agency the agent is authorized to establish privity
of contract between the principal ( his employer ) and a third party. As
such as the function of an third parties. In a way. Therefore an agent
is merely a connecting link. After entering into a contract on behalf of
the principal with third party, the agent drops out and ceases to be a
party to the contract and the contract bind the principal and the third
party as if they have made it themselves

Capacity of Agent
An agent is supposed to create contractual relations between his
principal and the third party. The principal and the third party must
possess contractual capacity and it is not necessary whether the agent
himself has contractual capacity or not. It means even a minor can be
appointed as an agent and he can bind his principal in a contract with a
third person.

6.2 Classes of Agents

The agency may b e classified from the point of view of:

The extent of their authority;
The nature of work performance by them.

Various classes of agents are as follows

6.2.1 The Extent of their Authority

General agent:
A general agent is one who is employed to do all act connected with a
particular business or employment, e.g., a manager of a firm. He can
bind the principal by doing any thing which falls within the ordinary
scope of that business, whether he is actually authorized for any
particular act or not, is immaterial, provided the third party bonafide.
Third parties may assume that such an agent has power to do all that
which usual for a general agent to do in the business concerned.
Special agent:
A special agent is one who is employed to do some particular act or
represent his principal in some particular transaction, e.g., an agent
employed to sell a motor car. As soon as the act is performed, the
authority of such an agent comes to an end. If a special agent does
anything outside his authority, the principal that the agent has
unlimited powers. They should, therefore, make proper enquiry as to the
Extent of his authority before entering out of any contract with him.
Universal agent:
A universal agent is said to be one whole authority is unlimited i.e.,
who is authorized to do all act which the principal can lawfully do and
can delegate. He enjoys extensive powers to transact every kind of
business on behalf of his principal. This type of agency is very rare.

6.2.2 Nature of work

Brokers:
A broker is an agent who represents a buyer or seller in negotiating a
purchase or sale without physically handling the good involved. He is
only concerned with making bargains and contact between other parties. A
broker
receives a commission or brokerage for his service. Each broker tend to
specialize in a particular line of good and services. As an
intermediary, broker has very following features;

He is concerned with bargains and connecting the buyer to the
seller, he dose not possess the goods and has limited powers over
the price and terms of sale. He dose not sell his own name.
A broker has no authority to receive payment and discharge good sold
as they are not in possession, and cannot change the principal’s
term and price. Insurance brokers, taxi brokers whose boss is the
principal

Factors:
A factor is an agent who sells good in his possession and under his
control on behalf of his principal. He is referred to as a commission
salesman. Unlike the broker, a factor possesses the good sells in his
own name, to a reasonable extent and pledge the goods. A factor has a
general line on the goods in his possession for all charges and expenses
incurred by him.
Commission Agent
A commission agent is a person who is employed to buy or sell good for
the best possible price. He get commission as his remuneration. Mostly,
commission agent are employed by foreign employed by being merchants.
Their business is to receive orders from foreign buyers to buy goods
from the local manufactures and traders. They act in their own name but
for the account for their foreign principals. In addition to purchasing
good for his principal, the commission agent undertakes the work
connected with the dispatch of goods such as booking space in ships,
preparation of bills of lading, undergoing customs formalities and
insuring good against risks.
Del Credere Agent
A del credere agent is employed to sell the good of his principal. He
give undertaking to his principal to make good the losses that may arise
from the failure of parties to whom he sell goods under the agency
business. Over and above the usual commission , the principal has to
give del credere agent an extra remuneration called del credere
commission for giving the undertaking that the principle will not have
to incur any loss arising from the failure of buyer to pay their dues.
Forwarding Agents:
Forwarding Agents are persons who act as agents of either exporters or
importers. They are employed to collect and deriver good on behalf of
others. When they act as agents of exporters, they collect the good and
attend to the packing and marketing and despatch of the good to the
proper destination. When they act as an agents of importers, they take
delivery of the good at the port of importation, examine their quantity
and quality and attend to their proper warehousing or transportation to
the place of business of importers. Forwarding agents posses specialized
knowledge of customs and other formality connected with import and
export trades. They render a great service to the exporter and the
importers by relieving them of the difficult task of collecting and
forwarding the goods.
Auctioneers:
An auctioneer is an agent employed usually to sell good at a public
auction. Where the auctioneer is appointed to sell good “ without
reserve”, he has the implement authority to sell to the highest bidder.
He has a line on the goods in his possession for his charges.
Non-Mercantile Agents
They in clued advocates, attorneys, insurance agents etc

6.3 Creation of Agency

Agency may be created in any one of the following ways:

By Express Agreement
By Implied Agreement.
By Necessity.
By Ratification.

These are explained as under:

6.3.1 Agency by Express Agreement:
Normally agency is created by an express agreement, specifying the scope
of the authority of agent the agent may, in such as case, be appointed
either by word of mouth or by an agreement in writing . however, in
certain cases, e.g. to execute a deed for sale or purchase of land, the
agent must be appointed by executing a formal ‘power of anttorney’ on
stamped paper.

6.3.2 Agency by Implied Agreement:
Implied agency arises when there is no express agreement appointing a
person as an agent, but instead the existence of agency is inferred from
the circumstances of the relationship between parties. Such an agency
may take the following forms:

Agency by estoppel
Agency by holding out;

Agency by Estoppel;
Such agency is based on the ‘doctrine of stoppel’ which may briefly be
stated thus, “where a person by his words or conduct has willfully led
another to believe that certain set of circumstances or fact exists, and
that other person has acted on that belief, he is stopped or precluded
from denying the truth of such statements, although such a state of
things did not in fact exist.” When an agent has, without authority,
done act or incurred obligations to third persons on behalf of his
principal, the principal is bound by such third act or obligations, if
he has by his words or conduct induced such third persons to believe
that such a principal will be stopped from denying subsequently his
agent’s authority.

An agency by estoppels is created when the all alleged principal by his
conduct or by words spoken or written, leads willfully the other
contracting party into a honest belief that the supposed agent’s had
authority to act as such and bind the principal. Such a agent’s
authority, although the agent did not in fact possess any authority
whatever Illustrations:

T tells M in the presence and within the hearing of N that he (T) IS
N’s agent. N goes not contradict this statement and keeps quit.
Later on M enters into a transaction with T believing honestly that
is N’s agent. N is bound by this transaction and he will be stopped
from denying the existence Notice that by virtue of the doctrine of
estoppels an apparent or ostensible agency becomes as effective as
an agency deliberately created.
A consigns good to B for sale and gives instruction not to sell
under a fixed price. C being ignorant of B’s instruction, enters
into a contract with A to buy the goods at price lower than the
reserved price A is bound by the contract.

Agency by holding out:
Such an agency is based on the “doctrine of holding out” which is apart
of the law of estoppel. In this case also the alleged principal is bound
by the act of the supposed agents, if he has induced their persons to
believe that they are done with his authority. But unlike an agency by
estoppels; an ‘agency by holding out requires some affirmative or
positive act or conduct by the principal to establish agency
subsequently. Thus, where an employer has been accustomed to pay for
goods bought out his behalf by his employee fraudulently after he has
left the employment. To be his agent (paying for purchases made by the
employee on previous occasion) estops him from denying that his
authority was not still in existence. It may be noted that where the
agent is ‘held out’ as having only a ‘ limited authority’ to do acts,
the principal is not bound by an act outside the authority.

6.3.3 Agency by Necessity
In certain circumstances, the law confers an authority on one person to
act as agent for another without any regard to the consent of the
principal: such an agency is called an agency of necessity. Bowstead has
rightly observed; “An agency by necessity is conferred by law in certain
cases to preserve the property or interest, to act before the
instruction of the creation of the relationship of principal and agent”.
Thus, the conditions which enable a person to act as another are as follows:

There should be a real necessity for acting on behalf of the principal.
It should impossible to communicate with the principal within the
time available.
The alleged should act bonafide in the interests of the principal.

Generally the ‘ Agency by necessity’ arises in the following cases;

Where the agent exceeds his authority, bonafide, in an emergency;
for example, where ‘A consign fruit to B at Nairobi with directions
to send them to C at London, and B finding that the fruit are
perishing rapidly, sells them at Nairobi itself for the best price
obtainable, the sale bind the principal and the agent cannot be held
liable for exceeding his authority as under the circumstance of of
the case there arises agency of necessity.
Where the of good acting as a bailee, dose anything to protect or
preserve the goods, in an emergency, although there is no express
authority in that regard. Thus a master of a ship is entitled, in
cases of accident or emergency, becomes an agent of necessity, for
example, if a public carrier develops an agine trouble, the driver
can pledge a part of the goods loaded thereon in order to rause the
money necessary for repairs and the pledge will be binding on the
owner of goods. Notice in these case it is not practicable to
communicate with the principal.
Where a husband improperly leave his wife without providing proper
means for her survival. In a special circumstance the case of
husband and wife also provides an instance of agency by necessity.
When the wife has been deserted by the husband and thus forced to
live separate from him, the wife is regarded as the agent of
necessity of the husband and she has the authority of pledging her
husband’s credit for necessaries even against her husband’s wishes.
However, this rule does not apply where the wife improperly leaves
the husband.

It is relevant to state that in the ordinary course of things there is
an implied agency between the husband and wife and the wife is presumed
to have implied authority to pledge her husband’s credit for necessaries
suiting to the couple’s joint style of living. But a husband enjoys no
corresponding right to pledge his wife’s credit for necessaries.

6.3.4 Agency by Ratification:

Ratification means the subsequent adoption and acceptance of an act
originally done without instructions or authority. Thus where a
principal affirms or adopts the unauthorized act of his agent, he is
said to have ratified that act and there comes into an agency by
ratification retrospective

Illustration
Buys 5 bags of wheat on behalf of B.B did not appoint A as his agent. B
may, upon hearing of the transaction, accept or reject it. If B accepts
it, the act is ratified and A becomes his agent retrospective effect.
Ratification relates back to time of contact: By ratifying the
unauthorized act of the agent, the principal becomes bound by the act as
if it had been originally done by his authority. Thus ratification
amounts to ‘prior authority ‘. It relate back to the original making of
the moment the agent acted and not from the time when the principal
ratified.

Illustration
The managing director of company, purporting to act as agent on
company’s behalf, but without its authority, accept an office made by L,
the defendant, for the purchase of some sugar works belonging to them L,
subsequently withdrew the office but the company ratified the managing
director’s acceptance. Held; L was bound. The ratification, related back
to the time of managing director’s accepted cannot be withdrawn.
Ratification may be express or implied. Ratification may be express or
may be implied in the conduct of the person on whose behalf the acts are
done.

Illustrations:

A , without authority, buys for B, Afterwards B sells them to C on
his own account. B ‘s conduct implies a ratification of the purchase
made by A for him.
A, without B’s Authority, lends B’s money to C. afterwards B accept
interest on the money from C.B’s conduct implies a ratification of
the loan.

Essential of a valid Ratification

A valid Ratification must fulfill the following conditions;

The agent must purport to act as agent for a principal who is in
contemplation. The agent must expressly contract as an agent for a
principal in the knowledge of third parties. The principal must be named
or must be ‘identifiable’ ands it is not sufficient to indicate
simply that he is acting as agent of some one. The word ‘identifiable’
here means that there must be such a description of the principal as
shall amount to a reasonable designation of the principal cannot step in
and ratify acts done by a third person.
There should be an act capable of ratification. The act to be
ratified must be an act capable of ratification. The act to be ratified
must be a lawful one. The act to be ratified must be a lawful one. There
can be no ratification of an illegal act or an act which is void.
Thus, the shareholders of a company cannot ratify an ‘ultra Vires’
contract made by the directors.
The principal must be in existence. For a valid ratification it is
essential that the principal must be in existence at the time when the
original contract is made, because right and obligations cannot attach
to s non-existent person.
The principal must be competent to contract. The principal; must have
contractual capacity both at the time of original contract and at the
time of ratification.
The principal must have full knowledge of material fact. No valid
ratification can be made by a person whose knowledge of facts of the
case is materially defective. Thus to constitute a valid ratification.
The principal must. At the time of ratification, have full
knowledge of all the material facts.
Whole transaction must be ratified. Ratification must be of the whole
contract, once a part is accepted, it is an implied acceptance of the
whole. There cannot be partial rejection and partial ratification. The
principal cannot reject the burdens attached and accept only the benefits.
Within reasonable time. A ratification to be effective must be made
within a reasonable time after the original contract is made. Where a
time is expressly fixed for the performance of the contract,
ratification must be made within that time.
Ratification must not injure a third person. A ratification cannot be
effective where its effect is to subject a third person.

6.4 Event of Agent’s Authority

The authority of an agent means his capacity to bind the principal to
third parties. The agent can bind the principal only if the acts within
the scope of his authority. The scope of an authority is determined by his:

Actual authority:
An agent can do all such acts as have been assigned to him either
expressly or impliedly and thereby bind the principal to third parties
by act done within the scope of his ‘actual’ or ‘real’ authority. The
authority is said to be express when it is given by word it is inferred
from the authority is said to be implied when it is inferred from the
circumstance of the case or the ordinary course of dealings.
Ostensible or apparent authority:
An agent also sold bind the principal to third parties by act done
within his apparent authority; ( although the act is in excess of his
authority); provided the third party acts bonafide and without knowledge
of the limitation of the agent’s apparent authority. Thus ‘actual’ and
‘apparent’ authority stands on the same footing. Ostensible authority
means an authority which the third parties dealing with the agent can
presume to be with the agent in relation to a particular business
ordinarily. In other words, such an authority implies authority to do an
act usually necessary in the course of conducting similar business in
accordance with the customs and usages of the particular place, trade or
market. Thus if is the usual practice of hotel managers to purchase
liquors and cigarettes, then purchases of this nature shall be deemed
within the scope of the manager’s apparent authority and the principal
will be bound by such purchases, notwithstanding limitations, as between
the principal and agent, put upon that authority.
Authority in emergency:
An agent has the authority, in an emergency; to do all such act for the
purpose of protecting his principal from loss as would be done by a
person of ordinary prudence in his own case, under similar circumstances.

6.5 Duties Of Agent

An agent has the following duties towards the principal:

Duty to follow principal’s directions or customs:
The first duty of every agent is to act within the scope of the
authority conferred upon him and form the agency work according to the
direction given by the principal. When the agent act otherwise, if any
loss be sustained, he must make it good to the principal, and profit
accrues, he must account for it.

Illustration:

Where the principal instructed the agent to warehouse the good at
particular place and the agent warehoused them at a different
warehouse which was equary safe, and the goods were destroyed by
fire without negligence, it was held that the agent was liable for
the loss because any departure from the instructions make the agent
absolutely liable.
An agent being instructed to insure goods neglects to do so. He is
liable to compensate the principal in the event of their being
lost.\if the principal has not given any express or implied
directions, then it is the duty of the agent
To follow the custom prevailing in the same kind of business at the
agent makes any departure, he does so at his own risk. He must make
good any loss so sustain by the principal.

Illustration

A, an agent, engaged in carrying on for B a business, in which it is
the custom to invest from time to time at interest, the money which
may be in hand, omits to make such investments, A must make good to
B the interest usually obtained by such investment.
B a broker, in whose business it is not the custom to sell on
credit, sell goods of A on credit to C, whose credit at the time was
very high. C, before payment, becomes insolvent. B must make good
the loss to A, irrespective of his good intentions.

Duty to carry out the work with reasonable skill and diligence:
The agent must conduct the business of the agency with as much skill as
is generally possessed by persons engaged in similar business, unless
the principal has notice of his want of skill. Further, the agent must
act which reasonable diligence and to the best of his skill.
If the agent does not work with reasonable care, skill ( unless the
principal has notice of his want skill) and diligence, he must make
compensation to his principal in respect of direct consequences’ of his
own neglect, want of skill or misconduct. But he is not so liable for
indirect or remote losses.

Illustration:

A an agent for the sale of goods having
without authority to sell goods on credit, sells to B on credit,
without making the proper sand usual enquiries as to the solvency of
B, B, at the time of such sale, is insolvent. A must make
compensation to his principal in respect of any loss thereby sustained.
A, an insurance broker, employed by the usual clauses are insterted
in the policy. The ship is afterwards lost. In consequence of the
omission of the clauses nothing lost can be recovered from the
underwriters. A is bound to make good the loss to B.

Duty to render accounts:
It is the duty of an agent to keep proper accounts of his principal’s
money or property and render them to him on demand, or periodically if
so provided in the agreement
Duty to communicate:
It is the duty of an agent, in case of difficulty, to use all reasonable
diligence in communicating with his principal, and in seeking to obtain
his instructions, before taking any in facing the difficult or emergency.
Duty not deal on his own account:
An agent must not deal on his own account in the business of agency;
i.e., he must not himself by from or sell to his principal goods he is
asked to sell or buy on behalf of his principal without obtaining the
consent of his principal after disclosing all material facts to him. If
the agent violates this rule, the principal; may repudiate the
transaction where it can be shown that the any material fact has been
knowingly concealed by the agent, to the principal is also entitled to
claim from the agent any benefit which may have result to him from the
transaction.
Duty not to make any profit out of his agency except his remuneration:
An agent stands in a fiduciary relation to his principal and therefore
he must not make any profit ( secret profit) out of his agency. He must
pay to his principal all moneys ( including illegal gratification, if
any) received by him on principal’s account. He can, however, deduct all
moneys due to him self in respect of his remuneration, or/and expenses
properly incurred. If his acts are not bonafide, he will lose his
remuneration and will have to account for the secret profit to his
principal.
Duty on termination of agency by principal’s death or insanity:
When an agency is terminated by the principal dying or becoming of
unsound mind, the agent must take, on behalf of the representatives of
his late principal, all reasonable step for the protection and
preservation of the interests entrusted to him.
Duty not delegate authority:
An agent cannot delegate his powers or duties to other persons except in
the following circumstances:

Where the principal has expressly permitted delegation of such power.
Where the principal has impliedly, by his conduct, allowed such
delegated. Of authority, e.g. where the principal knows that the
agent intends to delegate his authority but does not object to it.
Where by the ordinary custom of trade, a sub-agent may be employed.
Thus stock exchange member brokers generally appoint clerk to
transact business on behalf of their clients.
Where the very nature of agency makes it necessary to appoint a
sub-agent. For example, a manager of a shop may employ sale assistant.
Where the acts to done are purely ministerial and do not involve the
exercise of discretion, e.g. clerical or routine work.
Where unforeseen emergencies arise rendering appointment of the
sub-agent necessary.

6.6 Rights of Agent

An agent has the following rights against the principal

Right to receive remuneration:
The agent is entitled to receive his agree remuneration, or if nothing
is agreed, to a reasonable remuneration, unless he agrees to act
gratuitously. In the absence of any special contract, the right to claim
remuneration arise only when the agent has done what he had undertaken
to do. It is important that the agent can claim remuneration once he has
completed his work even though the contract is ever executed on account
of breach either by the principal or the third party. For example, where
an agent is appointed to secure orders for the manufacturer, he can
claim to commission on orders actually obtained by him although the
manufacturer is unable to execute them owing to a strike by the workmen.

Effect of misconduct:
An agent who is guilt of misconduct in the business of the agency is not
entitled to any remuneration in respect of that part of business which
he has misconduct. In addition, he is liable to compensate the principal
for any loss caused by the misconduct.

Right of retainer:
An agent has the right to retain, out of any sums received on account of
the principal, all moneys due to himself in respect of his remuneration,
or advances made or expenses properly incurred by him in conducting the
business of agency.
Right of lien:
An agent has also the right to retain goods, papers and other property,
whether movable or immovable, of the principal received by him, until
the amount due to himself for commission, disbursements and services in
respect of the same has been paid or accounted for to him.
Right to be indemnified against consequences of lawful acts:
An agent has also the right to be indemnified against the consequences
of all lawful act done by him in exercise of the authority conferred
upon him.

Illustration:
B, at London, under instructions A of Nairobi, contracts with C to
deliver certain goods to him. A does not send the goods to B and C for
breach of contact. B informs A of the suit, and A authorizes him the
suit. B defends the suit and compelled to pay damages and costs and
incurs expenses. A is liable to B for such damages, costs and expenses.

Right to be indemnified against consequences of act done in good
faith: An agent has a right to be indemnified against the consequences
of an act done in good faith thought it turns out to be injurious to the
right of third persons:

Illustration:
B, at the request of A, sells goods in the possession of A but which A
had right to dispose of. B does not know this and hand over the proceeds
of the sale to A. afterwards C, the true owner of the goods, sues B and
recovers the value of the goods and cost. A is liable to indemnify B for
what he has been compelled to pay to c and B’s own expenses.

Right to compensation:
The agent of a right to be compensate for injuries sustained by him due
to the principal’s neglect or want of skill.

6.7 Right and duties of principal:

The duties of an agent are indirectly the rights of a principal and the
rights of an agent are indirectly the duties of a principal. the duty
and rights of an agent have already been discussed in this chapter

Principal’s and liability for principal:
The extent of principal’s liability to third parties for the acts of the
agent is determined by the following rule:

The principal is liable for all act of the agent within the scope of
his actual and apparent (ostensible) authority.
When agent exceeds his actual or apparent authority, the principal
has option either disown the unauthorized act or to ratify the same.
The principal is liable for misrepresentation made or fraud
committed by the agent acting within the scope of his actual or
apparent authority.

Liability of Unnamed principal:
Unnamed principal means a principal whose existence is disclosed by the
agent but the name is not disclosed, once it is disclosed by the agent
that he is an agent the contract made by the agent that he is an agent,
the contract made by the agent binds the principal and the agent drop
out of the transaction despite the fact that the principal for whom he
acted has not been named. On being discovered, the legal position of the
unnamed principal is the same as where the principal is named, unless
there is a trade custom making the agent personally liable e.g. in case
of stock exchange transactions, a jobber can make a broker personally
liable. If, however, the agent declines to disclose the identity of the
principal, he because personally liable on the contact. Also if the
agent could not disclose the identity of the principal, say, because of
his sudden death, his state will be liable to third parties, in both
these cases the agent himself is deemed as a contracting party and
therefore he is made liable to the third parties.

Liability of Undisclosed principal:
Where an agent having authority to contact on behalf of another, makes
the contract in his own name (as for he is the principal himself),
concealing not only the name of his principal but also the fact that
there is a principal, his principal is called “undisclosed principal.”
In such a case neither the existence nor the name of the principal is
disclosed and the agent gives an impression to the third party as if he
himself is the contracting party although the agent has authority in
fact and contract on behalf of another.
In the case of an undisclosed principal, the mutual right and liability
of the principal, the agent and the third party are as follows:

Since the agent has contracted in his own name, he is liable to the
third party personality. The agent may be sued on the contract and he
has the third right to sue the third party, if the
If the third party comes to know existence of the principal before
obtaining judgment against the agent, he may sue either the principal or
the agent or both.

Illustration:
A, enter into a contract with B to sell him 100 bales of cotton and
afterwards discovers that B was acting as agent for C, A may sue either
B or C, or both, for the price of the cotton. It may be noted that the
principal and agent is “joint and several” in such a case. If the third
party elects to use and the claim remain partially he may afterwards sue
principal for the balance. Further, if the third party decides to use
the principal, he must allow the principal the benefit of all payment
received by him from the agent.

The principal if he likes, may intervene and sue the third party for
on performance of the contract. But he cannot exercise this right to the
prejudice of the third party has as against the principal, the same
rights as he would have had as against the agent if the agent had been
the principal, e.g. right of set off can be claimed by the third party.
Further the principal must allow the third party benefit of all payments
made by the third party to the agent. “ The principal if he requires
performance of the contract, can only obtain such performance subject to
the rights and obligation subsisting between the agent and the other
party to the contract”

Illustration
A, who awes sh. 500 to B, sell sh. 1,00 worth of rice to Bb. A Is acting
as agent of C in the transaction, but B has no knowledge nor reasonable
ground of suspicios that such is the case. C cannot compel B to make the
rice without allowing him to set-off A’s debt.

If the principal discloses himself before the contract is competed,
the third party may refuse to fulfill the contract, if he can show that
if he had know who was the principal in the contract or if he had known
that the agent was not a principal, he would not entered into contract.

Personal liability of agent to third party
It has already been observed that an agent is appointed to bring the
principal into contractual relations with third parties and the act of
the agent are the act of the principal. As a rule, therefore, an agent
cannot personally enforce contracts entered into by him on behalf of the
principal, nor can he be personally held liable for them, unless there
is a contract to the contrary. The principal is the right person to
enforce such contracts and to be held liable therefore. There are,
however, certain exception to this rule, where an agent presumed to be
personally liable, unless a contract to the contrary exists.

At the every out set it is worth noting that in certain cases where the
agent is personally liable, a person dealing with him may hold either
him or his principal or both of them liable. In other words, the
liability of the principal and the agent is joint and several’ in some
cases. Even where the agent is personally liable, the principal is also
liable to third parties and hence the saying. “the law which super adds
the liability of an agent dose not detract from the liability of the
principal.” The third party dealing within an agent who is personally
liable can choose between (a) suing both principal and agent jointly,(b)
electing to sue one of them. It is important that a judgment obtained
against one only and remaining unsatisfied is on a second suit against
the other party, i.e., if the third party sues the agent and obtains no
satisfaction he may afterwards sue the principal because the ability is
‘joint and several’.

An agent is presumed to be personally liable, unless a contract to the
contrary exists, in the following cases.

Where the agent expressly agrees:
If an agent, while contracting with a third party, expressly agrees to be personally liable on the
contract, he can held personally liable for any breach of contract.
Where the agent act a foreign principal:
Where an agent contract for the sale or purchase of good for a merchant
residing abroad, he is presumed to be personally
Where the agent acts for unnamed principal,
Where an agent act an unnamed principal, he is personally liable to the
third party, if he declines to disclose the identity of the principal,
say, because of his sudden death.
Where the agent act as disclosed principal:
Where an agent acts for an undisclosed principal and contracts in his a
party comes to know the existence of the principal, he may hold either
the agent or the principal or both of them liable.
Where the agent acts for a principal who cannot be sued:
An agent is also presumed to incur personal liability where he contacts
on behalf of principal who, though disclosed, cannot be sued. For
example, where an agent act for an ambassador or foreign sovereign, he
is personally liable. Similarly, where promoters contract for a
projected company, they are held personally liable for that, as the
company, being non-existent at the time
of the contract, cannot be used.
Where the agent exceeds his authority:
When an agent in excess of his real as well as apparent authority, and
in this way commits a breach of warranty of authority, he will be
personally liable to the third party for the otherwise for the whole
transaction.
Where there is trade usage or custom:
An agent also incurs personal liability where there is a trade usage or
custom to that effect. For example, a jobber may hold a broker
personally liable ass per the custom of trade in a stock exchange.
Where agent’s authority is coupled with interest:
Where the contract with the third party relate to a subject- matter in
which the agent has a special interest because he is really a principal
for interest. It should be noticed that in seconds, third, fifth and
sixth cases mentioned above, the third party can hold only the agent
personally liable and the principal.

6.8 Termination Of Agency

An agency may be terminated in any of the following ways:

By act of the parties, or
By operation of law.
We will consider these method one after the other.

6.8.1 Termination by act of the parties:

An agency comes to an end by act of the parties in the following cases.

Agreement:
An agency, like any other contract, can be terminated at any time by the
mutual agreement the principal and the agent.
Revocation by the principal:
The principal can revoke the authority of the agent at any time before
the agent has exercised his authority so as to bind the principal,
unless the agency is irrevocable. Further, revocation may be expressed
or implied in the conduct of the principal. Thus where A empowers B to
let A’s house and afterwards lets the house himself, it is an implied
revocation of B’s authority revocation of authority by the principal is,
however, subject to the following conductions:

In the case of a continuous agency, the principal may revoke it for
the future. It cannot be revoked with regard to act already in the
agency. Again, before revoking the authority for the future,
reasonable notice of the same should be given to the agent and also
to third parties. If reasonable notice is not given, the principal
will be liable to compensate the agent for damages resulting thereby
(i.e. for the agent’s loss of salary if on immediate job is
available), and be bound by the act of the agent with respect to
third parties.
Where an agency has been created for a fixed period and the
principal revokes the authority of the agent the expire of the
period, without sufficient cause, the principal is bound to pay
compensation on the resulting loss, even if the authority is revoked
after
reasonable notice.

An agency is irrevocable in the following cases:

Where the agent has himself an interest the subject matter of agency
of emergency is said to be coupled with interest. Such an agency is
created with the object of protecting or securing any interest of
the agent. So where a creditor is employed for valuable
consideration as an agent to collect rent due to the principal
(debtor) for adjusting the amount towards his debt, the principal
thereby confers the amount towards his debt, the principal thereby
confers the interest on the agent and the authority cannot be
revoked unilaterally during the subsistence of the interest, in the
absence of an exposed to the contrary
Where an agent has incurred a personal liability in accordance with
the terms of the contract of agency, the principal cannot be allowed
to revoke the agency leaving the agent exposed to risk or liability
he has incurred.

Renunciation by the agent:
An agency may also be terminated by an express renunciation by the agent
because a person cannot be compelled to continue as agent because a
person cannot be compelled to continue as agent against his will. But he
must give a reasonable notice of renunciation to the principal,
otherwise he wil be liable to compensate the principal for any damage
resulting thereby. If the agency is for a fixed period and the agent
renounced it without sufficient cause before the expiry of the period,
he shall have to compensate the principal for the resulting loss, if any.

6.8.2 Termination by Operation of law:

An agency automatically be operation of law in the following cases:

Completion of the business of agency:
An agency automatically comes to an end when the business of agency is
completed. Thus, for example, an agency for the sale of a particular
property terminates on the completion of the sale. Similarly, where a
lawyer is appointed to plead in a suit, his authority comes to an end
with judgment.
Expiry of time:
If the agent is appointed for a fixed term, the expiration of the term
puts an end to the agency, even though the business of the agency may
not have been completed.
Death of the principal or the agent:
An agency is terminated automatically on the death of the principal or
the agent. After coming to know about the principal’s death although the
agency terminate but the agent must take all reasonable steps for the
protection of the interests of the late principal entrusted to him.
Insanity of the principal or the agent
An agency also stand terminated when the principal becomes of an unsound
mind. Here also it is the duty of an agent to protect the interest of
the former principal by taking all reasonable steps. Likewise when the
agent becomes insane, during the agency, his authority terminates at
once and the agency comes to an end. It is interesting to mention that a
person of unsound mind can be
initially appointed as an agent.
Destruction of the subject-matter:
An agency which is created to deal with certain subject-matter will
terminated by the destruction of the subject-matter. For example, where
the agency was created for the sale of a house and the house is
destroyed by fire the agency ands.
Dissolution of a company:
If the principal or agent is an incorporated company, the agency
automatically ceases to exist on dissolution of the company.
Principal or agent becomes alien enemy:
If the principal and agent are nationals of two different contract of
agency is terminated. The outbreak of war renders the continuance of the
principal and agent relationship unlawful because now the principal or
agent becomes an alien enemy.
Bankruptcy of the principal:
An agency is also terminated by the insolvency of the principal.

Summary of the topic

Classes of agents
Creation of agency
Duties and responsibilities of agents
Duties and responsibilities of principals
Termination of agency