Agency

Habari! Your Guide to the Law of Agency

Hello future business mogul! Ever sent your friend to the duka with 100 bob to buy you a soda and some mandazi? Or have you ever used an M-Pesa agent to send money home? If you have, congratulations! You've already participated in an agency relationship. It's one of the most common legal relationships in business, and today, we're going to master it together. Let's dive in!

Who's Who in the Agency Game?

Every agency relationship has three key players. Think of it like a simple triangle of trust and business.

• The Principal: This is the boss, the one who gives the instructions and whose behalf the action is being taken. (In our example, that's YOU wanting the soda, or Safaricom).
• The Agent: This is the person in the middle, the one who agrees to act for the Principal. (Your friend going to the shop, or the M-Pesa agent).
• The Third Party: This is the person the Agent deals with to complete the task. (The shopkeeper, or the person receiving the M-Pesa).

      PRINCIPAL
      (You)
      /     \
     /       \  <-- Contractual Relationship
    /         \
  AGENT ----- THIRD PARTY
(Your Friend)   (Shopkeeper)
    |
    | <-- Agent's Action Binds the Principal

Image Suggestion: A vibrant, sunlit image of a Kenyan M-Pesa kiosk. The agent, in a green branded shirt, is smiling and serving a customer. In the background, Safaricom branding is clearly visible. This visually represents the Principal (Safaricom), the Agent (kiosk owner), and the Third Party (customer).

How is an Agency Relationship Created?

An agency doesn't just appear out of thin air. It is formed in several distinct ways. Let's break them down.

1. Agency by Express Agreement

This is the most straightforward way. The Principal and Agent agree, either verbally or in writing, that the agency relationship will exist. A very formal, written express agreement is called a Power of Attorney.

Example: A property owner in Mombasa writes a contract hiring a real estate company in Nairobi to manage their apartment block. The contract clearly states the agent's duties (collect rent, find tenants) and their commission. This is a clear, express agreement.

2. Agency by Implied Agreement (or Estoppel)

Sometimes, the relationship is created by the actions and conduct of the parties. It’s not written down, but it's obvious to everyone. This is also called "Agency by Holding Out" or "Estoppel." Essentially, if you make it seem like someone is your agent, the law will stop you (estop you) from later denying it.

Kenyan Scenario: Let's say Mr. Onyango, a farmer, always allows his farm manager, Peter, to buy animal feed on credit from the local Agrovet. For two years, Mr. Onyango pays the bill without question. One day, he has a disagreement with Peter and tells him not to buy any more feed. However, he forgets to tell the Agrovet. If Peter goes and buys feed on credit again, Mr. Onyango is legally bound to pay. By his past conduct, he "held out" Peter as his agent.

3. Agency by Ratification

This is the "after-the-fact" approval. An "agent" acts without any authority, but the "principal" later approves the action, making it legally valid as if there was authority from the beginning.

For ratification to be valid, several conditions must be met:

• The agent must have claimed to be acting for the principal.
• The principal must have been in existence and had the legal capacity at the time of the act.
• The principal must ratify the whole contract, not just the good parts!
• Ratification must be based on full knowledge of the facts.

Example: Wanjiru's car has been for sale for months. Her neighbour, Kamau, gets a great offer of KES 700,000 from a buyer while Wanjiru is out of town. Kamau has no authority, but he accepts a deposit of KES 50,000 on her behalf. When Wanjiru returns, Kamau explains everything. If Wanjiru accepts the KES 50,000 deposit, she has ratified the agreement and is now bound to sell the car.

4. Agency of Necessity

This happens in an emergency. An agent is forced to act to protect the principal's property or interests when it's impossible to get instructions.

Classic Kenyan Example: A driver from a transport company is hauling a truck full of fresh tomatoes from Naivasha to Kisumu. The truck breaks down in Kericho, and the driver cannot reach his boss in Naivasha. To prevent the entire load from rotting, the driver sells the tomatoes at the local Kericho market for a reasonable price. The law protects him; this is an agency of necessity created to save the principal from total loss.

What are the Agent's Duties? (The Rules of the Job)

Being an agent comes with serious responsibilities. It’s a position of trust, known as a fiduciary duty.

• Duty to Obey Instructions: An agent must follow the principal's lawful instructions to the letter.
• Duty of Skill and Care: An agent must perform their duties with the level of skill and care expected from a reasonable person in that profession (e.g., a lawyer agent must act like a competent lawyer).
• Duty to Account: The agent must keep proper accounts of all transactions and money. They cannot mix the principal's money with their own. No "eating" the cash!
• Duty not to Delegate: A famous Latin maxim says, "Delegatus non potest delegare" (a delegate cannot delegate). An agent is chosen based on personal trust and skill, so they cannot pass their job to someone else without permission.
• Duty to Avoid Conflict of Interest & Not to Make Secret Profits: The agent's loyalty must be 100% with the principal. They cannot put themselves in a position where their interests clash with the principal's. This means NO secret commissions or profits!

What are the Principal's Duties? (The Boss's Side of the Bargain)

It's not a one-way street! The principal also has duties towards the agent.

• Duty to Remunerate: The principal must pay the agent the agreed-upon salary or commission. If no amount is agreed, a reasonable amount must be paid.
• Duty to Indemnify: The principal must repay the agent for all lawful expenses and cover any losses the agent incurs while carrying out their duties.

Calculating an Agent's Commission

Let's do a quick calculation. Imagine you are an estate agent who sells a house in Runda for KES 40,000,000. Your commission is 2.5%.

Step 1: Identify the values.
   - Sale Price = 40,000,000 KES
   - Commission Rate = 2.5% or 0.025

Step 2: Apply the formula.
   - Commission = Sale Price * Commission Rate

Step 3: Calculate the result.
   - Commission = 40,000,000 * (2.5 / 100)
   - Commission = 40,000,000 * 0.025
   - Commission = 1,000,000 KES

Your payment (remuneration) would be a cool 1 million shillings!

Termination of Agency: The End of the Road

All good things must come to an end. An agency relationship can be terminated in two main ways:

1. By the Act of the Parties

• Mutual Agreement: Both principal and agent agree to end the relationship.
• Revocation by Principal: The principal fires the agent.
• Renunciation by Agent: The agent quits.

2. By Operation of Law

• Death or Insanity: If either the principal or agent dies or becomes mentally incompetent.
• Bankruptcy: The bankruptcy of the principal automatically terminates the agency.
• Frustration: The subject matter is destroyed (e.g., the house to be sold burns down) or the venture becomes illegal.

Excellent work for getting this far! You now have a solid foundation in the Law of Agency. You can see how it works everywhere, from M-Pesa agents to company directors and real estate managers. Understanding these principles is crucial for anyone in the world of commerce. Keep up the great work!