In general Agency can be defined as a relationship in which one gets the authority to act on behalf of another.

According to Ethiopian law there are two sources of agency.

 1. Agency by law (Ex. minor-tutor relationship) and

2. Agency by contract. Here the relationship is created by the mutual consent of the principal and the agent.  In the Ethiopian Civil Code it is defined in as a contract where by a person, the agent, agrees with another person, the principal, to represent him and to perform on his behalf one or several legally binding acts. Since our focus is on power of agency emanating from contract lets proceed to its details.

Form of the Agency

Normally the parties are free to determine the form. However where the act to be performed is required by law to be made in writing, the agency must be made in writing.

The principle of Agency

The principle of agency states that a person who acts through another acts himself. According to this principle, it is the principal and not the agent that is a party to the act carried out by the agent. However this principle holds true for cases of complete agency. Complete agency is an agency in which

A.     The agent acted in the name of the principal &

B.     The agent acted within the power given to him.

But if agent acted outside the given power, this does not affect the rights and obligations of the principal. But there are two exceptions where such acts bind the principal.

1.       Where the principal voluntarily ratifies the act or the contract.

2.      Where the law compels the principal to ratify the contract on the ground of good faith.

Scope of Agency

Normally it is up to the agent and the principal to decide the scope of authority of the agent. However the law provides two types of agency: – General Agency and Special Agency.

  1. General agency is an agency where the acts to be carried out by the agent are not enumerated, in such cases the agent is considered to have the power of carrying out acts of management such as collection and discharge of debt and sale of perishable items.
  2. Special agency is an agency where the authority of the agent must be clearly and expressly stated.

Duties of the Agent

The agency contract may contain some other obligations of the agent to his principal but the following duties are compulsory in any agency relation ship.

1.          Utmost good faith:-  one of the most important duties of an agent is that of utmost loyalty or trustworthiness. i.e.

A.    A duty not to permit a conflict of interest and the duty of disclosure

B.    Not to make any secret profit or take a bribe.

C.    Not to misuses confidential information.

2.       Diligence: – In performing his job, an agent should exert the degree of care and skill a reasonably prudent person would use in a similar situation.

3.       Duty to account: – The agent must account to the principal for all money and property of the principal that come into the agent’s possession. This is to make the principal informed and make decisions accordingly.

4.       Duty to account for management of affairs

5.       Personal Performance:- unless the agent is expressly or impliedly authorized to delegate the work to another person, he must accomplish his duty personally.

6.       Duty to appoint a substitute:– If unforeseen circumstances prevent the agent from performing his act to the principal personally and he cannot tell the principal and get instruction as to what he should do he is obliged by law to appoint another person to perform the agency. This is to keep the interest of the principal.

Duties of the principal

1.       Remuneration: – It is the compensation that is or should be due to the agent for the services he renders to the principal. So, the principal must pay to the agent the amount specified in their agreement.

2.      Advancement of money and reimbursement: – The agent needs money to carry out his obligation under the agency. The principal must give this money in advance. But, if the agents perform his duty on his own money, the principal must reimburse (repay) him.

3.      Indemnity: – The agent, while performing his duties under agent, may encounter damage. For this damage the law provides an indemnity from the principal. So, an agent entitled to compensation from the principal for any losses sustained in performing any authorized act.

According to the Ethiopian Civil Code an agent is liable for the principal where he violates his contractual and legal duties.

If the agent acted without having authority or beyond the authority given to him and the principal does not ratify the act or the law does not compel the principal to accept and causes damage to third party, he is liable to that third party.

Termination of Agency 

1.         Revocation by the principal  

This is the power of the principal to terminate the agency at his own wish. Irrespective of any express words in the contract, the principal can revoke the agent’s authority so that any further act by the agent does not bind the principal.

 2.        Renunciation by the agent

This is the right of termination of agency by the agent. The agent has the right to terminate the agency by giving, notice in advance.

3.        Death, Mental Incapacity or Bankruptcy of either party is also factors that may serve as the reason of termination of agency.

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