By the end of this chapter, you will be able to:
Mastering these skills will help you confidently navigate and apply agency law in real commercial situations, making you a valuable asset in the trade.
Compiled by: James Mwangi
The law of agency is fundamental in commercial transactions across all professional sectors in Kenya. It governs the relationship where one party, the agent, acts on behalf of another, the principal, to create legal relations with third parties. Understanding how agency relationships are formed and the scope of an agent’s authority is essential for effective business management and risk mitigation. For example, in a retail business in Nairobi, a manager may act as an agent when negotiating supply contracts, making the principal liable for those contracts if the agent acts within authority.
The formation of an agency relationship occurs when one party authorizes another to act on their behalf, creating legal obligations between the principal and third parties. This relationship is prevalent in many Kenyan sectors, such as SACCOs where loan officers act as agents negotiating loan agreements with members. Classification of agents is important because different types of agents have varying degrees of authority and responsibilities, affecting the legal outcomes of their actions.
An agency relationship can be established through several modes, depending on the context and agreement between the parties. It is crucial for professionals in all fields to recognize these modes to ensure lawful delegation of authority and avoid unintended liabilities.
This occurs when the principal explicitly appoints the agent, either orally or in writing, to perform specific tasks. Example: a county government may appoint a procurement officer through a formal contract to purchase goods on its behalf, clearly outlining duties and limits.
Agency may arise from the conduct or circumstances that imply consent without a formal agreement. Example: a hotel receptionist regularly handling bookings on behalf of the hotel, where the agency relationship is understood from the role performed.
If a person acts on behalf of another without prior authority, the principal can later approve or ratify the act, thereby creating an agency relationship retrospectively. Example: a cooperative society manager who negotiates a contract without prior approval may have the deal ratified by the board, binding the cooperative.
In urgent situations, an agency relationship may be created by necessity to protect the principal’s interests. Example: a farm manager may purchase seeds urgently during a shortage to prevent crop failure, acting as an agent by necessity.
When a principal’s conduct leads a third party to reasonably believe that an agency exists, the principal may be estopped from denying the agency relationship. Example: a retail shop owner who allows an employee to negotiate sales, leading customers to believe the employee is authorized.
A general agent has broad authority to act on behalf of the principal in all matters related to a particular business or employment, or to act continuously in a particular kind of business. Agents are classified by the scope and duration of their authority, and Kenyan professionals must identify the type of agent involved to understand the extent of liability and control. Example: the manager of a county referral hospital may be a general agent empowered to make decisions regarding procurement, staffing, and administration within the hospital’s operations.
A special agent is appointed to perform a specific act or transaction on behalf of the principal. Their authority is limited in scope and duration, and the principal is bound only within the limits of that authority. Example: a SACCO may appoint a lawyer as a special agent to handle the registration of property on behalf of a member.
A sub-agent is appointed by an agent to assist in performing the agency duties, with the principal’s consent. Example: a university bursar delegating payment processing to an assistant acts through a sub-agent.
Broker agents act as intermediaries to negotiate contracts but do not have authority to conclude contracts themselves. Example: a hotel booking agent who arranges reservations without finalizing contracts.
These agents have authority to deal with goods, such as selling or consigning them. Example: a retail store’s sales representative authorized to sell stock is a mercantile agent.
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Create a free accountThe chapter explores the formation and classification of agents, distinguishing between general agents who handle a wide range of tasks and special agents appointed for specific purposes. It then examines the scope of agents' authority, explaining how their power to act on behalf of principals is established and recognized. The duties of agents are detailed, highlighting the importance of performance, obedience, care and skill, estoppel, accounting, and the requirement for personal performance in fulfilling their roles. Agents’ rights are also covered, including their entitlement to sue for compensation and their right to retain possession of goods through a lien. The chapter concludes by discussing various methods through which an agency relationship may be terminated, such as by mutual agreement, withdrawal, death, performance of the agreed task, lapse of time, insanity, or bankruptcy. This comprehensive overview provides a clear understanding of the legal framework governing agency relationships in commercial law.
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