Agency law is fundamental to cooperative management in Kenya because it governs how cooperatives engage representatives to act on their behalf in business transactions. Understanding the formation, classification, and authority of agents ensures that cooperative leaders and managers delegate tasks effectively while safeguarding the cooperative’s interests. This chapter explores how agents come into existence, the types of agents relevant to cooperatives, and the scope of their authority in legal and operational contexts.

5.1 Formation and classification of agents

The relationship between a principal (such as a cooperative society) and an agent arises from an agreement where the agent is authorized to act on behalf of the principal. In cooperative management, this relationship facilitates efficient handling of transactions, negotiations, and representation before third parties. Proper classification of agents helps define their roles, responsibilities, and limits of authority, which is crucial for risk management and legal compliance in cooperative operations.

Formation of agency

The formation of an agency relationship is the legal basis that enables an agent to act for the principal. In Kenya’s cooperative sector, this relationship is often formalized to ensure clarity and avoid disputes.

Express agreement

An agency can be formed through an express agreement where the principal explicitly appoints an agent, either orally or in writing. Example: a cooperative society may formally appoint a procurement officer to negotiate and sign supply contracts on its behalf.

Implied agreement

Sometimes, agency arises from the conduct or situation of the parties, even without explicit agreement. Example: if a cooperative manager regularly authorizes an employee to collect payments and this practice is accepted, an implied agency relationship is established.

Necessity

Agency by necessity occurs when an agent acts without prior authorization but in urgent circumstances to protect the principal’s interests. Example: if a cooperative’s warehouse is at risk of damage, a storekeeper may arrange emergency repairs without direct consent.

Ratification

Ratification occurs when a person acts on behalf of another without authority and the principal later approves the act, which makes the agency effective from the time the act was done. The principal must have existed and been capable of authorizing the act when it was done, must know the material facts, and must adopt the whole act rather than only the parts that suit it. Example: a hotel supervisor orders linen for the hotel without approval, and the hotel owner later accepts the delivery and pays the invoice, so the hotel is bound by the purchase.

Estoppel

When a principal’s conduct leads a third party to reasonably believe that an agency relationship exists, the principal is estopped from denying the agent’s authority. Example: if a cooperative’s board allows a member to act publicly as a negotiator, the cooperative cannot deny the agency to the third party.

5.1.1 General agent

A general agent is appointed to perform all acts connected with a particular business or trade, or to act continuously for the principal in a particular kind of business. Classifying agents clarifies their scope of duties and authority, which is critical in cooperative management to avoid unauthorized acts that may bind the cooperative legally. Example: in a cooperative context, a general manager who oversees daily operations and enters contracts on behalf of the cooperative is a general agent.

5.1.2 Special agent

Special agents have limited authority to perform specific acts or transactions, and the principal is bound only within the limits of that authority. Example: a cooperative society may appoint a special agent to handle the sale of a particular asset or to negotiate a single contract with suppliers.

5.1.3 Sub-agent

A sub-agent is appointed by an agent to perform duties on behalf of the principal. Example: a cooperative’s procurement officer (agent) may hire a sub-agent to conduct market surveys for purchasing decisions.

5.1.4 Del credere agent

A del credere agent guarantees the performance of a third party to the principal, assuming liability if the third party defaults. Example: a cooperative may use such an agent to ensure payments from buyers in export transactions.

5.1.5 Mercantile agent

Mercantile agents are involved in the sale or purchase of goods or the management of goods. Example: a cooperative’s sales representative who negotiates sales contracts with retailers acts as a mercantile agent.

Chapter Summary

This chapter explored the formation and classification of agents, distinguishing between general agents who have broad authority to act on behalf of the principal and special agents appointed for specific tasks. It examined the scope of agents' authority, which defines the extent to which agents can bind their principals in legal agreements. The duties of agents were analysed in detail, including their obligations to perform tasks diligently, obey lawful instructions, exercise care and skill, avoid acting beyond their authority through estoppel, maintain accurate accounts, and personally carry out assigned responsibilities. The rights of agents were also discussed, focusing on their entitlement to sue for remuneration or damages and their right to retain possession of goods through a lien until payment is received. Finally, the chapter outlined various methods through which an agency relationship may be terminated, such as mutual agreement, withdrawal by either party, death or insanity of either principal or agent, completion of the agreed task, lapse of time, or bankruptcy. Together, these elements provide a comprehensive understanding of how agency relationships are created, maintained, and brought to an end within commercial law.