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Mastering this skill will help you navigate and manage business relationships confidently and professionally in the commercial world.
Compiled by: Ann Chebet
Commercial transactions across all sectors in Kenya depend heavily on the law of agency to facilitate business operations efficiently. Whether it is a SACCO managing loan agreements through appointed representatives or a county government contracting services via authorised agents, understanding how agency relationships form and function is critical. This chapter explores how agents are created and classified, as well as the scope and limitations of their authority, ensuring that students grasp the practical implications of agency in diverse professional environments.
Agency arises when one party, the agent, is empowered to act on behalf of another, the principal, to create legal relations with third parties. This arrangement is fundamental in Kenyan commercial law and underpins numerous business dealings, from procurement in retail outlets to management decisions in hospitals. The formation and classification of agents determine how authority is granted and the nature of the agent's duties and powers.
A general agent has broad authority to act on behalf of the principal in all matters related to a particular business or employment. For example, a manager appointed by a retail chain to oversee all purchases and sales transactions acts as a general agent. Their authority is ongoing and includes routine business decisions within the scope of the principal's operations.
A special agent is appointed for a specific task or transaction, with authority limited to that particular purpose. For instance, a lawyer hired by a hospital to negotiate the purchase of medical equipment acts as a special agent. Once the task is completed, the agency relationship typically ends.
| Basis | General agent | Special agent |
|---|---|---|
| Scope of authority | All matters in a particular business or office | One particular task or transaction |
| Duration | Continuing, for a long or indefinite period | Ends when the task is completed |
| Nature of transactions | A series of routine transactions | An isolated, specific transaction |
| Effect of secret limits | Principal usually bound if the third party was unaware | Principal not bound by acts outside the stated authority |
| Discretion | Wide, uses own judgement | Narrow, follows specific instructions |
| Examples | Branch manager, company director, estate manager | Auctioneer selling a vehicle, advocate negotiating one purchase |
The creation of an agency relationship can be explicit or implied, involving a consensual agreement whereby the principal authorises the agent to act on their behalf. In Kenyan practice, this formation is often documented in contracts but may also arise from conduct or necessity.
An express agreement is the most straightforward method of forming agency, where the principal and agent explicitly agree on the terms of the agency. This agreement typically specifies the scope of authority, duties, and remuneration. For instance, a county government may appoint a procurement officer through a formal contract to negotiate supply agreements on its behalf.
Implied agency arises from the conduct of the parties or the circumstances surrounding their relationship. For example, a manager at a retail business who regularly orders stock without explicit authority may be deemed an agent by implication if the principal accepts these actions without objection.
Agency by necessity occurs in urgent situations where the agent must act to protect the principal's interests without prior consent. An example is a hotel manager authorising emergency repairs to critical infrastructure when the owner is unreachable, thereby preventing further damage.
When a person acts on behalf of another without prior authority, the principal may later ratify the act, thereby creating an agency relationship retrospectively. A cooperative society may ratify a committee member's contract with a supplier even if the member initially lacked authority.
Agency by estoppel happens when the principal's behaviour leads third parties to reasonably believe that an agency relationship exists, thereby preventing the principal from denying the agent's authority. For example, if a university's staff member regularly signs contracts on its behalf with no objection, the university may be estopped from denying the staff member's agency.
Agents are classified based on the scope of their authority, duration of appointment, and the nature of their duties. Besides general and special agents, the following classes are common in commercial transactions, and understanding them helps clarify the extent of their powers and liabilities.
A sub-agent is appointed by the agent to carry out duties delegated by the agent, with the principal's consent. In a SACCO, a loan officer (agent) may delegate verification duties to an assistant (sub-agent) to expedite processing. The principal is liable for acts of the sub-agent within the scope of their authority.
A del credere agent undertakes additional responsibility by guaranteeing the creditworthiness of third parties in transactions on behalf of the principal. For example, a cooperative society's sales agent who guarantees payment from buyers assumes greater risk and may receive higher commission for this assurance.
A mercantile agent is typically involved in the sale or purchase of goods, with authority to handle commercial transactions such as consignments or auctions. A hotel's procurement officer who sells surplus equipment on behalf of the establishment acts as a mercantile agent.
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Create a free accountThis chapter examined the formation and classification of agents, distinguishing between general agents who manage ongoing business and special agents appointed for specific tasks. It explored the scope of agents' authority, which defines the extent of power granted to act on behalf of the principal. The duties of agents were detailed, including performance obligations, obedience to instructions, exercising care and skill, the principle of estoppel, maintaining proper accounts, and the requirement for personal performance. The rights of agents were also discussed, highlighting their entitlement to sue in their capacity as agents and their right to retain possession of goods under a lien. Finally, the chapter outlined the various methods of terminating an agency relationship, such as mutual agreement, withdrawal by either party, death, completion of the agreed task, lapse of time, insanity, and bankruptcy. Understanding these elements is crucial for effectively managing agency relationships in commercial law.
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