THE LAW OF AGENCY

THE LAW GOVERNING AGENCY

RELATIONSHIP IN TANZANIA

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— It is governed by Part X of the Law of Contract Act. Cap.345
R.E 2002.
— The common law rules relating to Agency
— Customary rules and Usages.

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Nature of Agency
— Agency-is a legal relationship created by express or implied
contract or by Law, in which one party may act on behalf of
another party and bind that other by word or action(Black’s
Law Dictionary 8th Edn)
— Agent-is a person employed to do any act for another or to
represent another in dealings with third persons. See s.134 of
LCA Cap. 345

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Cont’…
— Principal-is a person who employs another person to act on
his or her behalf. See s.134 of LCA Cap. 345
— Sub-agent-is a person employed by, and acting under the
control of the original agent in agency business. See s.143
LCA of Cap 345.

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PRINCIPLES ON WHICH THE LAW OF
AGENCY IS BASED
• Common Law rules relating to Agency tend to reflect the
force of the maxim. Qui facit per alium, facit per se (to mean he
who acts by another acts by himself) see s.178 LCA
• Hence it follows that, liability of an agent is the liability of
the principal.
• Note, that a person who is competent to contract by himself
may act through another except where personal skills and
qualification is required.

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TRILATERAL RELATIONSHIP IN LAW OF
AGENCY
— Principal –Agent
— Principal –Third parties
— Agent-Third parties

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CAPACITY TO CONTRACT IN LAW OF
AGENCY
— Any person who is of the age of majority according to the
law to which he is subject, and of sound mind may employ an
agent. See s.135 of LCA Cap 345
— See also s.136 of LCA Cap 345,provides the same capacity as
to who may be an agent as between the principal and the
third parties.

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Cont’…

• A person who lacks legal capacity to make a contract, does

not lose that incapacity by employment of an agent.
• Thus, a minor who has merely a restricted capacity to
contract as a principal, may be appointed to act as an agent
for any purpose for a principal who has full contractual
capacity ;

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Cont’…
— But a minor cannot, by appointing another person to contract
for him as agent, this would overcome his own lack of
capacity to make certain contracts. See G.(A) v. G(T) (1970)

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CONNECTING LINK IN AGENCY
BUSINESS
— Under contract of agency the agent is authorized to establish
privity of contract between the Principal and a third party.
— As such the function of an agent is essentially to bring about
contractual relations between the Principal and third parties,
in a way an agent is merely a connecting link.

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Cont’…
— At this point the agent drops out and ceases to be a party to
the contract, and the contract binds the Principal and the
third party as if they have made it themselves.

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TEST OF AGENCY
• Agency exists whenever a person has authority to act on
behalf of the other and to create contractual relation between
that other and third persons.
• When this kind of power is not enjoyed, the relationship is
not of agency, hence a person is not an agent merely because
he gives another advice in matters of business. See Mahesh
Chandra v. Rather Kishore(1908),12 Cal W.N28

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DISTINCTION BETWEEN AGENT AND
SERVANT
— Servant is employed by Master, while Agent is employed by
Principal
— Servant acts under direct control and supervision of his
employer in every particular case, while Agent is not subject
to direct control and supervision of the Principal, as he often
has a large dsicretion to act within the scope of his reality

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Cont’…
— Servant does not create relations between his employer and
third persons and can not bind the master to third persons.
Note, if to some purpose he is authorized to bind the Master,
to that extent he is an agent. while, the agent creates
contractual relations between the principal and the agent.

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DISTINCTION BETWEEN AGENT AND
INDEPENDENT CONTRACTOR
• IC is one employed by the employer to do specific work, but
the manner and means of performance are entirely left to his
discretion, independently of the employer’s control or
interference, while an agent acts within the scope of his
principal’s discretion
• The IC does not represent his employer in relation to other
persons, and can not bind the employer by contract entered
into with

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Cont’…
• Others. While, the agent does represent his Employer in
relation to other persons and can bind the employer(his
principal) by contracts entered into with other persons
within the scope of his authority.
• To the IC consideration is mandatory, while creation of
agency consideration is not necessary. See s.137 of LCA,
where there is consideration, remuneration is fixed by…

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Cont’…
• Agreement between principal and agent. Note, there are
agents who don’t need remuneration, such agents are called
‘GRATUITOUS AGENTS’ the fact that the principal has agreed
to be represented by agent is a sufficient ‘detriment ‘ to the
principal to support the contract of agency. Note, Gratuitous
agent is not bound to do the work entrusted to him by his
principal, but once he begins the work he is bound to
complete it.

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CREATION OF AGENCY
• It is created either expressly or impliedly.
• An express appointment may either be in writing or by word
of mouth, and in certain cases writing sometimes under seal
is imperative, and within the scope of agreement.
• By implied agreement, entails by (i) by Estoppel (ii) by
Holding out (iii) out of Necessity

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Cont’…
— Agency by Ratification:

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AGENCY BY EXPRESS AGREEMENT
• Apart from word of mouth or writing, there are situations
where agent must be appointed in special manner. For
instance,
• If agent is to contract under seal, he must be appointed by a
deed, known as ‘power of attorney’ particularly when
transferring immovables.
• At common Law, If a person is to act as agent for a
corporation, may be appointed by deed

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Cont’…
— Though it is not mandatory
— In case of signing the prospectus of a company on behalf of
the Director, or director’s consent, an agent must be
authorized in writing.
— When an agent is appointed to grant or surrender leases for
more than three years, his appointment must be by deed.

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AGENCY BY IMPLICATION
• This arises out of the conduct or relation of the parties.
• (i) Agency by estoppel: for instance, A wife living with her
husband and managing his household, is presumed to have
authority from her husband to pledge his credit for
necessaries for household, hence in this situation the husband
is estopped from denying the agency. See s.188 of LCA

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AGENCY BY HOLDING OUT
• Arises out of the doctrine of holding out which is part of the
law of estoppel.
• It requires some affirmative or positive act or conduct by the
principal to establish agency subsequently.
• For instance, where an employer has been accustomed to pay
for goods bought on his behalf by his employee from the
third party, the employer may be liable for a purchase…

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Cont’…
— Made in the customary manner, even though it is made by the
employee fraudulently after he has left the employment,
hence this estops the employer from denying that his
authority was not still in existence. As the third party is not
aware of the employee’s resignation or some other factors
that led to an end of the employment.

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AGENCY BY NECESSITY
— The law confers an authority on one person to act as agent
for another without any regard to the consent of the
principal.
— Arises when one takes immediate steps to protect the
property of another as he didn’t have sufficient time for the
agent to inform the principal.

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CONDITIONS THAT SUFFICES AGENT BY
NECESSITY
— There should be a real necessity for acting on behalf of the
principal.
— It should be impossible to communicate with the principal
within the time available.
— The alleged agent should act bonafide in the interest of the
principal.

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CASES WHERE AGENCY BY NECESSITY
ARISE.
— Where the agent exceeds his authority, bonafide in an
emergency.
— Where the carrier of goods acting as a bailee, does any act to
protect or preserve the goods in an emergence.
— Where a husband improperly leaves his wife without
providing proper means for her sustainance.

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AGENCY BY RATIFICATION
— Ratification means a subsequent adoption and acceptance of
an act originally done without instruction or authority. Here
the principal will have retrospective effect by affirming or
adopting the unauthorized act of his agent. See s.148 of LCA
— See s.149 of LCA for express and implied Ratification.

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ESSENTIALS OF A VALID RATIFICATION
— Agent must purport to act as agent for a principal who is in
contemplation, and must be named or must be identifiable(
description of the principal). Note, that an undisclosed
principal can not step in and ratify acts done by a third
person. Similarly, a person entering into contract in his own
name cannot later shift it on to a third party.

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 Cont’…
— The act must be capable of ratification, to mean the act should be
a lawful one. Therefore no ratification of an illegal act or an act
which is void, similarly, the shareholders in a company can not
ratify an ultra vires contract made by the directors.

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Cont’…
— The principal must be in existent in the time when the
original contract is made, as the rights and obligations cannot
attach to non existent person. Though there is exception
where a company can ratify its pre-incorporation contracts.
— The principal must be competent to contract, that is, he
should have contractual capacity.

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Cont’…
• The principal must have full knowledge of material facts. See
s.150 of LCA
• Whole transaction must be ratified. Hence there cannot be
partial rejection and partial ratification, as the principal
cannot reject the burden attached and accept only the
benefit. See s. 151 of LCA
• Ratification must be made within a reasonable time.

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Cont’…
• Ratification should not injure the third person. That is to say,
ratification cannot be effective where its effect is to subject a
third party to damages, or terminate any right or interest of a
third person. See s.152 of LCA
• ILLUSTRATION: Flora not being authorized thereto by
Anna, demands on behalf of Anna, the delivery of a chattel,
the property of Anna, from Colman, who is in possession of
it.

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Cont’…
— This demand cannot be ratified by Anna, so as to make
Colman liable for his refusal to deliver.

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EXTENT OF AGENT’S AUTHORITY
— This means his capacity to bind the principal to third parties,
Agent can bind the principal only if he acts within the scope
of his authority.
— The scope of agent’s authority is determined by the
following.

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ACTUAL AUTHORITY
• 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 acts done within the scope of his actual or real
authority.
• The authority is express it is given by words spoken or
written, authority is implied when it is inferred from the
circumstances of the case or ordinary course of business. See
s.139 LCA

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OSTENSIBLE OR APPARENT AUTHORITY
• 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.
• 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.

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Cont’…
— Agent can bind the principal to third parties by acts done
within his apparent authority, although the act is in excess of
his actual authority, provided the third party acts bonafide and
without knowledge of the limitation of the agent’s apparent
authority. See Watteau vs Fenwick (1893)1 Q.B 346
— See also s.140 (1),(2) of LCA

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Illustration
— For instance, A intimates B, his agent to carry on his business
of a ship-builder. B may purchase timber and other materials,
hire workmen for the purpose of carrying on the business of
A.

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AUTHORITY IN EMERGENCE
— An agent has authority in an emergence, to do all such acts
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.

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DELEGATION OF AUTHORITY
• An agent cannot lawful employ another to perform acts
which he has express or impliedly undertaken to perform
personally, unless by the ordinary custom of the trade, a sub-
agent may, or from the nature of agency, a sub-agent must be
employed. See s.142 of LCA.
• Following the well known maxim ‘delegatus non potest delegare’
to mean a delegate…

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Cont’…
— Cannot further delegate, an agent being himself a delegate of
his principal cannot pass on that delegated authority to
someone else.
— The rationale for this rule is that confidence in the integrity
and competence of a particular person is at the root of
contract of agency.

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EXCEPTIONS TO THE RULE WHERE AN
AGENT CAN DELEGATE
• Where the principal has expressly permitted delegation of
such power.
• Where the principal has impliedly by his conduct, allowed
such delegation of authority.
• Where by the ordinary custom of the trade sub-agent may be
employed. Eg, stock exchange member brokers generally
appoint clerks to transact business on behalf of their clients.

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Cont’…
• Where the very nature of agency makes it necessary to
appoint sub-agent. For instance manager of a shop may
employ sales assistant.
• Where the acts to be done do not involve the exercise of
discretion, e.g clerical or routine work
• Where unforeseen emergencies arise rendering appointing of
sun-agent necessary

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CONSEQUENCES OF THE
APPOINTMENT OF SUB-AGENT
— The legal effects of the appointment of sub-agent, depends
whether he has been properly or improperly appointed.
— Properly appointed when the appointment is made under any
of the aforementioned exceptional circumstances, and
improperly appointed when it is made without any
justification for such appointment.

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Where sub-agent properly appointed
• The principal is bound and liable to third parties for acts of
the sub-agent, as if he were an agent originally appointed by
the principal.
• The agent is responsible to the principal for the acts of sub-
agent. See Calico Printers Association vs Barclays Bank (1931)
145 L.T 51
• The sub-agent is responsible for his acts to the agent and not
the principal, but in case a sub-agent is guilty of fraud or
wilful wrong, he is…

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Cont’…
— Directly liable to the principal. In such a case the principal
has the choice to sue either the agent or the sub-agent. See
Nensukhdas vs Birdichand (1917)19 Bom L.R 948

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Where sub-agent improperly appointed
• The principal is not represented by such sub-agent and hence
he is not liable for the acts of the sub-agent.
• The agent is responsible for the acts of the sub-agent to the
principal as well as to the third parties.
• The sub-agent is not responsible to the principal at all, hence
can’t be held liable by the principal even for fraud or wilful
wrong.

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RIGHTS OF AN AGENT
• Right to retain sum of money in respect of advances made
by him in conducting principal’s business. See s.169 of LCA
• Agents lien on principal’s properties in respect of
commission due to him for services rendered. See s.173 of
LCA
• The agent has the right to be indemnified in respect of all
lawful acts done on behalf of the principal. See s.174 of
LCA,see s.177 too.

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DUTIES OF AN AGENT
• Agent is duty bound to conduct the business according to the
directions given by the principal or custom of the business in
absence of any directives. See s.163 of LCA
• Agent has a duty to carry out the work with reasonable skills
and care. See s. 164 of LCA
• Duty to make compensation to his principal in respect of the
direct consequences of his own neglect, want of skills or
misconduct. S.164

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Cont’…
• Duty to render true and proper accounts to his principal on
demand. See s.165 of LCA
• Duty to communicate with the principal in cases of
difficulties. S. 166 of LCA, see also duty not to delegate
authority.
• Agent has duty not to make secret profit in doing principal’s
business, if agent makes secret profit the principal will have
the following adequate action.

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Cont’…
— To dismiss the agent.
— Recover secret profit made by agent.
— Refuse to pay remuneration to the agent with respect of the
transaction for illegal ratification.
— Sue the third party for promising profit to the agent for
illegal ratification.
— Repudiate the whole transaction.

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DUTIES OF PRINCIPAL TO AN AGENT
— Principal is bound to indemnify an agent against
consequences of all lawful acts done by such agent in exercise
of the authority conferred upon him. s. 174 of LCA
— Principal duty to pay compensation to an agent for injury
caused by the principal’s neglect or want of skill. See s.177 of
LCA

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TERMINATION OF AGENCY
— There are two main ways in which contract of agency may be
brought to an end.
— That is by acts of parties and,
— By operation of law.

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By acts of parties
• Through mutual agreement
• Through the principal revoking his authority. See s.153 of
LCA
• Through revocation by principal. See s.155 of LCA
• Impliedly ,e.g when the principal gives authority to agent to
sell his estate, before an agent do anything, the principal sells
it to another person.

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Cont’…
— Through the agent renouncing the business of agency. See
s.155 of LCA
— If an agency has been created for a fixed period, it ends after
expiration of the fixed period, when revoked before such
time the principle must compensate the agent, even if a
reasonable notice is given. s.157of LCA

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Cont’…
— In case of continuous agency, the principal may revoke it for
the future, provided a reasonable notice is given to the agent
and also to the third parties. See s. 158 of LCA

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TERMINATION BY OPERATION OF LAW
• Completion of business of agency. S.153 of LCA
• Expiry of time, when agent appointed for a fixed term puts
an end to the agency even though business of agency may not
have been completed.
• Death of the principal or the agent, here agency is
terminated automatically. S.153, 161 of LCA

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Cont’…
• Insanity of the principal or agent. S.153 LCA
• Insolvency of the principal. S. 153 of LCA
• Destruction of the subject matter, when agency has been
created to deal with certain subject matter.
• Principal or agent becomes alien enemy, when the principal
and agent are nationals of two different countries and war
breaks out between the two countries.

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Cont’…
— Dissolution of company, when the principal or agent is an
incorporated company, the agency automatically ceases to
exist on dissolution of company.

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When termination of agency takes
effect.
— As between the principal and agent, termination of agency is
effective only when it becomes known to the agent, and so
far as the third parties are concerned termination of agency
takes effect when it is made known to them. see s. 160 of
LCA

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IRREVOCABLE AGENCY
• When authority given to an agent cannot be revoked, it is
said to be irrevocable agency in the following cases.
• Where the agency is coupled with interest, that is where the
agent himself has interest in the subject matter of agency, the
agency is said to be coupled with interest. Such an agency is
created with the object of protecting or securing any interest
of the agent. S.154LCA

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Cont’…
— When revocation would cause the agent personal loss, this is
for the reason that the principal cannot be permitted to
defeat unilaterally rights already established.
— When authority has been partly exercised by an agent, since
acts and obligations have already done in the agency. See
s.156 of LCA

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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 an agent that he is an agent, the contract made
by an agent binds the principal and the agent drops out of the
transaction despite the fact that the principal for whom he
acted has not been named.
• On being discovered the , the legal position…

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Cont’…
— of the unnamed principal is the same as where the principal is
named. Unless there is a trade custom making the agent
personally liable. But if the agent declines to disclose the
identity of the principal, he becomes personally liable on the
contract, similarly, if agent could not disclose identity of the
principal followed by his sudden death, his estates will be
liable to third parties. S.183LCA

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LIABILITY OF UNDISCLOSED PRINCIPAL
— Where the agent having authority to contract on behalf of
another, makes a contract in his own name, as if he is the
principal himself, concealing not only the name of his
principal but also the fact that there is a principal. Such a
principal is called ‘undisclosed principal’

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Mutual rights and liabilities of
undisclosed principal,agent&3rdparty
— Since the agent has contracted in his own name, he is liable to
third party personally.
— Agent may be sued on the contract and he has the right to sue
the third party.
— If the third party comes to know the existence of the
principal before obtaining judgment against the agent, he
may either sue the principal or the agent or both.

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Cont’…
• If the principal discloses himself before the contract is
completed, the third party may refuse to fulfil the contract, if
he can show that if he had known who was the principal in
the contract or if he had known that the agent was not the
principal, he would have not entered into the contract. See
s.183(2) of LCA
• Further, that, the principal if he likes may intervene and sue
the third party for …

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Cont’…
— Non-performance of the contract, but he cannot exercise this
right to the prejudice of the third party and 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.

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 I THANKYOU ALL FOR BEING ATTENTIVE & WISHYOU THE
BEST OF LUCK.
KIND REGADS.

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