02 March 2012 Written by  Awet Hailezgi and Addisu Damtie

The Concept of Agency: Preliminary Considerations

Definition

The Law of agency is in most cases defined as the relationship between two persons, where one (the agent) may act on behalf of the other (principal) and bind the principal by words and actions .It is also defined as the relationship in which one person acts for or represents another by the latter’s authority, either in the relationship of principal and agent, master and servant, employer or proprietor and independent contractor. The law of agency could also be defined as the judiciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so as to act. (Black’s law dictionary, 1991)

PaulMc Carthy has tried to partially capture the essence of agency by saying:

The law of agency deals with the ways in which one person, physical or juridical, can deal with other persons through the medium of intermediary. Of course one person may deal with another directly, without any assistance. However a person can perform only one thing and be in only one place at one time. The complexity of modern life, particularly in the commercial area, is such that the law must permit a person to make contracts and perform other juridical acts by a means of the representative.(Paul Mc Carthy, Materials for the study of the law of Agency and Business organizations, Faculty of Law, Haileslase I University, p.1)

In addition to the above, one writer, Mulgeta Mengist (2005 ) states the following; The concept of Agency is recognized in all modern legal systems as an indispensable part of the existing social order. It fulfills the most diverse functions in the public and private law of today; in particular it assists in organizing the division of labor in the national and international economy, by making it possible for a principal to extend his individual sphere of activity. By its aid spanning space and time, he is able to have one or more persons act for him, on his behalf, if necessary (the advantages of Agency) for the institution of modern life based on the division of labor, predominate to an extent that agency is every where prevalent .An agent is appointed when an individual is unable to act himself on account of his manifold occupations, absence, illness, advanced age, etc. Or a representative may be designated in order to take advantage of his special capacity, knowledge, and experience even for the mere desire, such as not to appear personally in order to avoid hostility, controversy, etc or similar considerations.

With regard to the concept and significance of the law of agency, two other writers stated as follows:

The purpose of the law of agency and the need to employ agents, to perform certain tasks which their principals have neither time; nor knowledge nor experience to perform by themselves scarcely requires explanation in the highly commercial and industrialized world. Commerce would literally come to a standstill if businessmen and merchants could not employ the services of factors, brokers, forwarding agents estate agents auctioneers and the like and were expected to do everything by themselves. These specialized middle men, whose main purpose usually is to make contracts on behalf of their principals or to dispose of their principal’s property, are to be found in all advanced societies and, whether one accepts or deplores some of the economic consequences of this phenomenon, the fact is that the agent’s activities are an inevitable feature of a developed economy. Hence the growth of the law of agency, both in volume and sophistication, has matched the growth in importance of commerce, as we know it today.  (Markesinis and Munday, pp.3-4)

Defining the concepts in the law of agency in the above way may not be enough and appropriately reflect the whole concept of the law. Two writers provide the inconveniences with defining disciplines or concepts in very few words in the following manner:

They argue that definitions may be of use and, at times are quite necessary when contracts or statutory enactments have to be construed, for in such cases they can help define the terms used in the documents. But they are of doubtful validity in books or lecture courses, they can also be misleading, especially if they attempt to compress the entire subject under consideration into a single sentence, which is intended to be both concise and meaningful. This is also true with the law of agency where academics have been quick to criticize each other’s definitions and find in them errors and omissions. There is, therefore, no justification for yet other definitions, which, more likely than not, will prove unsatisfactory.

In ancient Roman law, for a contract to exist between two persons, both of them should be personally and physically present. Conclusions of contracts were like a ceremony, which was made by adhering to certain formalities and including some words to say repeating. So many reasons have been given to justify the absence of the concept of representation (Agency) in the Roman law. One of the explanations attributes to the roman conception of the personal nature of obligation. The personal nature of obligation under this legal system is closely related with the strict formalities of the Roman law. With regard to the formation of legal relationships, the Romans attached special significance to formal ceremonies in which certain acts were performed and solemn words repeated. Owing to this reason, the law refused to grant rights and duties on a person who did not actually participate in such ceremonies and fulfill the required formalities. Hence the Maxim, aleri stipulario nemo potest, excluded stipulations in the name of third party and stipulations for the benefit of a third party. The other view that holds for the absence of agency in the Roman law was owing to the patriarchal economy of the Romans. This economy was least developed, and almost all business transactions were limited within the family. Hence it is possible to infer that there was no need for the institution of agency.

The above principle had served the then society of Rom. However, as time went by, situations forced the Romans to recognize the principle of ‘’one who acts through another acts for himself.“ As a result, contracts were started to be formed between individuals, even in the absence of the contracting parties in certain places. (B.S. Markesinis and R.J.C Munday, pp.3, 1986,)

Nowadays, one who could not appear personally to conclude a contract could appoint a delegate or representative. Hence what the representative performs could be taken as an act done by the person representing the former. Agency in this case is hence stated as the relationship between two persons in which one of them (the representative or the agent) has the power or authority to represent and act on behalf of the other (the principal) in legal transactions. This partially captures the essence of agency.

We have been discussing the definition and some concepts related to the definition of the law of agency or representation. And now let us see the rational behind the institution of the law of agency.


Why law of Agency?

The concept of agency reduces the cost of contracting. Though it increases the number of parties and transactions, it has made possible for individuals to utilize the services of others in accomplishing, for more than could be done by their unaided efforts. By contracting through an agent, the principal may reduce the cost of spatial and cultural distances, the need to acquire expertise, and the inconvenience of having to deal personally with all contracting parties. In the same manner, agency reduces the cost of internal organization and so indirectly the costs of contracting by facilitating specialization of function and expanding the scares resources of time, energy and knowledge available to the principal. In here not only does the principal benefits, but so does his contracting partner (The third party in agency law) who would otherwise bear some of the principals higher contracting costs in a less favorable contract price. In this case, the agent also benefits from the principal through compensation.

In a nutshell, the following points can best elaborate the need for having an agent acting on behalf of someone.

  1. The need to overcome time and space limitation: one person may wish to perform several transactions at the same time. However, he could be in a position where he is unable to run these several activities by himself at one instance, for he is at one specific place (space) at one time. He cannot be at different places (spaces) at one instance (time); for this reason, he/she may want another individual to act on his behalf. In this case the concept of representation comes into view. The inability of a person to be at different places at the same time can thus be solved by agency representation.
  2. The need to overcome limitations of knowledge and skill

Performing one or more activities may demand certain skills or knowledge. Hence one may lack the required knowledge in performing a certain activity. Hence, another individual who has the required skill may act on behalf of the person who has no such expertise in performing the duty.

 

1. The need to represent legal persons


Legal personality is endowed to non-living entities. Thus, after acquiring the legal personality these entities will have the right to exercise all activities that a legal person can do. For instance, they can sue and be sued, administer property etc, to conclude a valid contract and to transact with 3rd parties etc. However, these entities don’t have mental capabilities to analyze the cost and benefit of their transaction because they don’t have minds like human beings. Hence, they need an agent to act on behalf of them. The manger of a business organization, for example, is considered as an agent through which any dealings with a third party is concluded.

From the above discussion, we can understand that an agent can act on representing legal persons to exercise rights and duties that a certain legal person enjoys. It is through the agent (human being) that a certain legal person enjoys its rights and performs its duties.

 

2. The Need to overcome in-capacities


The Ethiopian civil code provides that capacity is required in order to perform a juridical act. Certain category of people like minors (below the age of 18) and interdicted people can not have the appropriate analytical capacity in order to enter into a juridical act. Hence they may fail to analyze the cost and benefit of the transaction. Hence some one else who can act on behalf of them is appointed.

Last modified on Wednesday, 02 May 2012 13:05