The law of agency is a fundamental aspect of commercial law, governing the relationship where one party, the agent, acts on behalf of another, the principal, in business transactions. In Kenya’s dynamic business environment, understanding the classification of agents is crucial for business managers to navigate contracts, delegations, and liabilities effectively. This chapter focuses on the different types of agents within commercial law, providing clarity on their roles, authority, and implications in business dealings. Mastery of this topic supports sound decision-making in sectors such as banking, retail, and county government operations.

5.1 Classification of Agents

In commercial practice, agents vary widely in their scope of authority, mode of appointment, and the nature of the agency relationship. Kenyan businesses, from SACCOs to universities, rely on different agents depending on their operational needs and legal requirements. Classifying agents helps managers identify the rights and obligations inherent in each agency type, ensuring compliance and reducing risks in contractual engagements.

5.1.1 General Agents and Special Agents

General and special agents differ primarily in the extent of their authority and the duration of their agency relationship. Understanding this distinction is vital for business managers who delegate tasks or enter into agreements through representatives.

General Agents

General agents possess broad authority to act on behalf of the principal in all matters related to a particular business or employment. For instance, a branch manager of a retail chain in Nairobi acts as a general agent with authority to oversee daily operations, hire staff, and negotiate local contracts within the scope of the business. Their actions bind the principal legally in routine commercial dealings.

• Continuous Authority: General agents usually have ongoing authority that extends over a series of transactions, such as a sales manager managing multiple deals.
• Scope of Work: They handle tasks that are recurring and necessary for the business’s operation, including hiring employees or ordering stock.
• Binding Effect: Contracts entered into by a general agent within their scope of authority are legally binding on the principal.
• Employment Relationship: Often, general agents are employees or appointed representatives with a formal relationship with the principal.
• Accountability: They owe fiduciary duties to act in the principal’s best interest, maintaining transparency and loyalty in their dealings.

Special Agents

Special agents have limited authority, typically confined to a single transaction or a specific task. For example, a SACCO appointing a legal practitioner to negotiate a property lease acts as a special agent for that specific purpose. Their authority ends once the task is completed.

• Limited Authority: Their powers are narrowly defined and do not extend beyond the agreed task.
• Temporary Engagement: Special agents are usually appointed for short-term or one-off assignments.
• No Implied Authority: They cannot bind the principal beyond the specific instructions given.
• Specific Accountability: They must strictly adhere to the principal’s instructions without deviation.
• Common in Professional Services: Lawyers, auctioneers, or brokers often act as special agents in business transactions.

5.1.2 Mercantile Agents and Del Credere Agents

Mercantile and del credere agents play specialized roles in commercial transactions, especially in the buying and selling of goods. Their classification affects the nature of their liability and the extent of their responsibility towards the principal.

Mercantile Agents

Mercantile agents are authorized to buy, sell, or consign goods, often operating in commercial markets or warehouses. For example, a cooperative society might appoint an agent to sell agricultural produce on behalf of its members.

• Authority Over Goods: They can negotiate sales and purchases of goods within the scope of their mandate.
• Possession Requirement: Mercantile agents usually have possession of the goods or documents of title.
• Binding Contracts: Their actions in selling or buying goods bind the principal.
• Risk Management: They are responsible for handling goods with reasonable care during transactions.
• Common in Trade: Agents in wholesale markets, export-import businesses, or commodity exchanges fit this category.

Del Credere Agents

Del credere agents not only act as mercantile agents but also guarantee payment by the buyer to the principal. This additional responsibility places them at higher risk and entitles them to extra commission.

• Guarantee of Payment: They assure the principal that the buyer will pay, bearing liability if the buyer defaults.
• Higher Commission: Due to the financial risk, del credere agents receive a premium commission.
• Trust Relationship: They must carefully vet buyers to minimize payment risks.
• Legal Obligations: Their guarantee creates a contractual obligation separate from merely acting as an agent.
• Use in Credit Sales: Common in businesses where goods are sold on credit, such as machinery suppliers or vehicle dealers.

Del Credere Agents

Del credere agents are a special class of mercantile agents who, in addition to selling goods on behalf of the principal, guarantee to the principal that the third party will pay for the goods. This means that if the buyer defaults, the del credere agent is liable to the principal for the price. For example, a machinery dealer in Nairobi may appoint a del credere agent to sell equipment to farmers on credit, with the agent guaranteeing payment to the dealer.

• Guarantee of Payment: The del credere agent undertakes to pay the principal if the buyer fails to do so, providing additional security for credit sales.
• Entitlement to Extra Commission: Because of the increased risk, del credere agents are paid a higher commission, known as del credere commission.
• Liability to Principal: If the buyer defaults, the agent must pay the principal, making the agent both a guarantor and a sales representative.
• Common Practice in Credit Sales: This arrangement is often used in industries where goods are sold on credit, such as vehicle dealerships or agricultural equipment suppliers in Kenya.
• Legal Standing: The relationship and liability of a del credere agent are recognized under Kenyan contract law, ensuring principals can recover losses from the agent if necessary.

5.1.3 Sub-Agents and Co-Agents

In complex business transactions, principal agents may delegate authority to sub-agents or work alongside co-agents. These relationships affect liability and delegation of duties within the agency framework.

Sub-Agents

Sub-agents are appointed by the original agent to perform part or all of the agency duties. For instance, a travel agency in Mombasa acting as a principal agent may appoint a local guide as a sub-agent to manage customer tours.

• Delegated Authority: The original agent authorizes the sub-agent, who acts on behalf of both the agent and principal.
• Liability: The principal is liable for the acts of the sub-agent if appointed with authority.
• No Independent Contract: The sub-agent’s contract is with the agent, not directly with the principal.
• Fiduciary Duties: Sub-agents owe duties to both the agent and principal.
• Use in Complex Transactions: Common in logistics, travel industry, or multi-tiered sales operations.

Co-Agents

Co-agents are agents appointed by the principal to act jointly or severally in the same transaction. A bank may appoint multiple agents to sell shares in a public offering, each acting independently but towards the same goal.

• Independent Authority: Each co-agent can act independently within the scope of their appointment.
• Shared Responsibilities: They may share commissions or responsibilities as agreed by the principal.
• Risk Distribution: Co-agents spread the workload and risk among themselves.
• Coordination Required: Effective communication between co-agents is essential to avoid conflicts.
• Common in Large Transactions: Used in large commercial projects or joint sales efforts.

Chapter Summary

This chapter explored the various classifications of agents, highlighting the different roles and capacities in which an agent may operate within commercial transactions. It then examined how an agent's authority is established, focusing on the methods through which principals grant power to agents to act on their behalf. The discussion progressed to identifying the duties that agents owe to their principals, emphasizing responsibilities such as loyalty, obedience, and care. Alongside these obligations, the chapter clarified the rights agents hold, including entitlement to remuneration and protection against interference. Finally, the chapter addressed the ways in which an agency relationship can be terminated, considering factors such as mutual agreement, completion of the task, or revocation of authority. Together, these topics provide a comprehensive understanding of the law of agency and its application in commercial contexts.