LAW OF AGENCY

THE LAW OF AGENCY

This deals with the relationship which exists between a principal and an agent whereby the principal
consents either expressly or impliedly that the agent acts on his behalf in respect of transaction with
other persons.
The agency relationship is established where the principal authorises the agent to act on his behalf in
respect of matters in which he would have personally undertaken. A fiduciary relationship is therefore
created between the principal and the agent.
The fiduciary relationship is created owing to the fact that the agent is required to act or pursue the best
interest of his principal and not his parochial or selfish interest. The basis of the fiduciary relationship
stems from the fact by authorising the agent to act on his behalf the principal has placed some level of
trust and confidence in him.
The agent is simply a mechanism through which the principal acts. The legal principle is expressed as ‘qui
facit per alium facit per se’ (he who does something through another does it himself)
 
The extent of fiduciary relationship created
 The agent is required to act in good faith which entails acting honestly, sincerely and fairly.
 
Creation of agency
 By an agreement between the parties
 By implication
 By ratification
 By necessity
 By estoppel
a. Agreement between parties
This arises where there is an agreement between the principal and agent, either verbally or in writing
for the agent to act on behalf of the principal in specified matters and sometimes in a specified
manner.
The legal effect of the Agency agreement is in twofold:
(i) The agent is required to deal or act in good faith with third parties on behalf of the principal. To this
effect the agent is required to act in good faith.
(ii) The principal, rather than the agent, becomes responsible in law for the agents actions in respect of
the transactions specified in the agreement creating the agency relationship. (Indemnity clause)
b. By implication
This arises not from the express words of the parties but rather from the conduct of the principal
towards the agent.
• This occurs where the two parties have over an appreciable period conducted themselves in a
manner that it can be inferred by any reasonable person who observes the conduct that one of
them is consenting to act on behalf of the other party in specified transactions. When this happens,
the law will interpret that conduct as having given rise to an agency relationship between the
parties.
• Agency by implication may also arise where an agency is expressly created, the agent is impliedly
authorised to do anything that is necessary and reasonable in order to achieve the purpose of the
expressly created agency.
• Thirdly, where an agency is created expressly and the agent is required to undertake transactions
governed by rules in a particular trade, the law will take the position that the agent is impliedly
authorised to do anything that is normally done in that trade in relation to that particular transaction
that he has been expressly engaged by his principal to undertake.
c) Creation of agency by ratification
This arises where the agent acts on behalf of the principal without the authorisation of the principal, but after the
act the principal decides to adopt the acts as his own. In this situation, the agency relationship is deemed in law to
have commenced from the date the act was carried out by the agent, although without the authority of the
principal.
Conditions for a valid ratification
 The agent must have acted on behalf and in the interest of the principal.
 At the time the agent undertook the transaction the principal must have been in existence as a principal and must
have had the capacity to undertake the transaction in question himself.
 
In Ashbury Railway Carriages v Riche (1875) a company was formed to build railway carriages. The directors
entered into a contract to construct a railway in Belgium, a contract which was ultra vires. The company could
not ratify the contract as at the time the contract was made it lacked the necessary legal capacity.
 
 Full disclosure on the part of the agent of all information concerning the transaction to the principal based on
which the principal agreed to ratify the act of the agent. 
 The principal must ratify the whole transaction and not parts of it
 The ratification must take retrospective effect.
 The transaction must not be an illegal one or against public policy.
d) Agency created by estoppel (agency by implication of the law owing to the conduct of the
parties)
This arises where the principal allows the agent to transact business on his behalf with third
persons in such a manner that those third parties reasonably and honestly believe that an
agency relationship exists between the principal and agent. In such a situation even if the
parties do not intend to create an agency relationship, the law will impose that on them.
e) Agency by necessity
This is where the law imposes an agency relationship on the parties in specified circumstances.
 
 This is created where the agent acts to save the property of another person exposed to harm. Here the
danger the property is exposed to creates an urgent situation requiring an urgent act to deal with the
situation. In such a situation anybody who acts even without the instructions of the owner of the
property, with the view to protecting the property from the danger or harm is treated by law as an
agent of the owner of the property in question.
See The Winson where a salvo of goods from the stranded ship took them to a place of safety, in
order to prevent them from deteriorating and had them stored in a warehouse. It was held that the
owner of the goods was liable to the salvo for the cost of warehousing the goods.
See also GN Ry v Swaffield where the railway company claimed the cost of feeding and stabling a horse
from the owner, who had failed to collect it on arrival at its destination and had not authorised the railway
company to incur those expenses.
 In Great Northern Railway Co. v. Swaffield. The defendant arranged for a horse to be sent by
rail to a station 15 miles from where lived. He was to collect it from the station. It arrived at
10:00 pm and there was nobody to collect it. The station master who did not know the
defendant’s address and so arranged for the horse to be kept at nearby stable overnight
 
The defendant refused to pay the expense incurred. It was held that there was an agency of
necessity and he had to pay the charges. There was an emergency situation as the horse was
‘perishable’ and the stationmaster had acted in Swaffield’s best interest to preserve his
property.
 
Agency of necessity may also arise where a person acts to preserve the life of another person.
Agency by necessity therefore allows the agent to recover the cost or expenses incurred in so
acting.
 Conditions for the creation of agency by necessity
 There must be an emergency situation. However if an emergency situation is created but the
act is carried out not necessarily to deal with the emergency, then no agency by necessity is
created.
 Secondly it must be impossible to obtain the instructions of the person on whose behalf the
act is undertaken.
 Thirdly, the agent must have acted in good faith and in the interest of the one on whose
behalf he is acting.
 Authority of the Agent
Persons who qualify to be agent
Any person who qualifies to enter into a contract, qualifies to be an agent. Therefore the qualifying age is
21 years or more.
Companies registered under the Companies Act of Ghana
Partnerships registered under the Incorporated Private Partnership Act, 1962 (Act 152)
Corporations set up by an Act of Parliament ( Example STC etc.)
Persons who do not qualify
Persons below 21 years
Insane persons
Intoxicated persons
• A person does not need to have contractual capacity in order to become agents. The reason being that
when an agent acts on behalf of the principal, it the principal who in law acts. The transaction is
owned by the principal, who takes both the risks and benefit. The agent is only a tool through whom
the principal acts.
 
Special and general agents
A special agent is engaged to undertake or complete a single transaction or a series of single transaction.
The relationship therefore exists for a limited or specified period and not to be continuous in nature. E.g is
an auctioneer.
A general agent on the other hand is engaged to carry out a series of transactions over a period of time.
E.g is a person engaged to manage a shop or company.
This agent has authority to represent his principal in the business of a particular kind, e.g. to manage a
shop. The principal will be liable of acts done by the agent within the scope of usual authority unless he
has expressly forbidden such acts and given notice to third parties likely to be affected.
 
In Watteau v. Fenwick (1893) owners of a public house had appointed a manager to manage the pub for
them. The manager’s name appeared on the door as licensee of the premises. The owners and the
manager had an express agreement which limited the manager to the purchase of bottled ale and mineral
waters only. Despite the limitation, the manager bought cigars for resale from a supplier who was
unaware of restriction. The supplier sued the owner for payment and the court held that he could succeed
and recover the price as the action of the manager was within his usual authority.
Scope of an agent’s authority
It refers to the limits within which the agent may act on behalf of the principal. The scope defines the
things the agent is permitted to do so as to bind the principal. The agent’s authority may be express,
implied or apparent.
 
a. Express authority
This refers to the things that the agent is specifically authorised to do and in the manner the agent is
required to do them, either orally or in writing. Therefore in order to ascertain the scope of the authority
of the agent one needs to examine the words that prescribe the things the agent can or cannot do.
The authority is express because it has specifically been stated. Therefore if the agent acts within the
scope of his authority then his acts become binding on the principal. However if he acts beyond his scope
of authority he is personally responsible for his conduct. Express authority is therefore more protective of
the principal than the agent.
b. Implied authority/ usual authority
This arises in instances where the scope of the authority of the agent has not been specifically stated,
either orally or in written form. In such a case the authority of the agent is inferred from the conduct of
the principal towards him.
Where an agent has been authorised to conduct a particular trade or business, he has the implied
authority to do anything normally done within that trade or business in respect of that particular transact
he has been expressly authorised to do.
Furthermore an agent he has been authorised to act in a certain position he has the implied authority to
exercise powers normally exercised by those who occupy those positions.
Also an agent has the implied authority to exercise all powers necessary or incidental for the lawful
discharge of the task he has been expressly authorised to do.
The essence of the implied authority is the even though the agent has not been expressly authorised to
do that owing to the conduct of his principal towards him he is entitled to act in that way and if by so
doing he acts reasonably and in the interest of the principal, such an act will be binding on the principal.
Where the situation is the opposite, the acts of the said agent will not be binding on the principal.
Implied authority protects the agent as against the principal.
c. Apparent authority/Ostensible authority

An agent has apparent authority where his principal acts towards a third party in a manner which creates
the impression in the mind of the third party that the agent has authority to act for the principal. In some
situations there may not even be an agency relationship. Rationale behind publication of disclaimer
notices.
 
The legal significance of an agent’s authority
• The principal his responsible for the acts of the agent where the agent has acted within the scope of his
authority. Where on the other hand the agent has acted beyond his scope of authority, the agent may
personally be held liable.
 
• The idea of implied authority enables the law to hold the principal liable for the acts of the agent even
when those acts are not expressly authorised.
 
• Apparent authority enables the principal to be held liable for acts of the agent towards third parties, as
a result of allowing the agent to do those acts.
 In spite of the types of authority, a person who knows or ought to know that an agent lacks
authority to undertake a particular transaction and proceeds to deal with that person cannot hold
the agent’s principal responsible.

• Secondly, where an agent indicates to a third party that he has authority to undertake a particular
transaction with him and that third party relies on that indication and proceeds to deal with the
agent, the third party can hold the agent responsible for breach of warranty.

Disclosed principal
This is a principal whose existence or identity is disclosed or known to a third party with whom an
agent transacts business of the principal. Here the third party knows that agent does not act for himself
but for the principal.
The legal effect is that it is only the principal who is entitle to benefit from such transactions and can
sue and be sued in respect of those transactions.
In the same vein the third party cannot hold the agent personally liable for obligations arising from the
transaction.
Undisclosed principal
This is a principal whose identity is not known to the third party with whom the agent transacts business.
The third party is therefore unaware the agent is transacting business on behalf of another person
(principal)
Legal consequences
 In conducting the transaction with the third party, the agent portrays himself as the owner, as a result
of which the undisclosed principal cannot intervene to enforce the transaction against the third party.
• Secondly, where personal factors of the agent influenced the third party to do business with him, the
undisclosed principal cannot intervene to enforce the transaction against the third party. The rule
which prohibits an undisclosed principal from intervening to enforce a transaction is designed to
protect the third party.
•  Therefore where the third party will not be prejudiced should the undisclosed principal intervene, the
law will permit him to do so.
In Sika Contracts Ltd v. Gill and Others a chartered civil engineer acting for a principal made a contract
with a building contractor and did not disclose this fact until sometime after the contract had been
concluded. He had signed his letters ‘BL Gill BE, MICE, Chartered Civil Engineer’ although the court
agreed that he was acting in a professional capacity, he was also personally liable to the plaintiffs. (1978)
1 BLR 11