Agency is the relationship which arises whenever one person (the agent) acts on behalf of another person (the principal) and has power to affect the principal’s legal position with regard to a third party.

In practice, the two most important function of an agent are:

  • Making contracts on his principal’s behalf
  • Disposing of his principal’s property

There are three parties to the contract of agency

  1. Principal
  2. Agent
  3. Third party (parties)


  1. By agreement or consent of the parties either express or implied
  2. Necessity – by the operation of the law under the doctrine of agency of necessity.
  3. By Ratification – retrospectively approving what someone has done on one’s behalf without prior authority.
  4. By Estoppel – Where a person having information that someone has been parading himself as his agent without his authority and failing to stop him; will subsequently be prevented from denying that such a person is his bonafide agent.


Duties of the Agent

  1. Obedience: The agent must act strictly according to the principal’s instructions.
  2. Care and skill: An agent professing a particular calling must show the degree of skill appropriate to his mandate. He must also exercise care in handling the business of his principal.
  3. Personal performance: Duty of non-delegation; the agent must perform personally and cannot delegate.
  4. Duty to Account: An agent must keep proper books of accounts on behalf of his principal. He must also render (present) this account to his principal at stated intervals.
  5. The agent also has a duty to keep the principal’s property distinct from that of the agent.
  6. Duty of good faith: An agent is not allowed to make a secret profit or receive a bribe.
  7. Duty of Secrecy: An agent must keep his principal’s affairs secret
  8. Full performance: Agent has duty to perform fully according to terms of the agreement.
  9. An agent must communicate all material facts to his principal with reasonable diligence.


Duties of the Principal

  1. Indemnity : The principal is expected to reimburse the agent on any expense  he incurs in the performance of his agency
  2. Remuneration: The principal must pay the agent all commissions and remunerations due to him.
  3. Performance: The principal also has the duty to perform fully according to the terms of the agreement.


  • The duties of the agent are the rights of the principal
  • The duties of the principal are the rights of the agent


In addition to the above, the following right of the agent must be noted

LIEN: An agent has the right to retain possession of the property of the principal as security for payment of a debt (e.g. his commission)


Method of Termination of Agency

  1. By agreement between the agent and the principal
  2. Revocation of the agent’s authority by the principal
  3. Renunciation of the agent’s authority by the agent himself
  4. Full Performance – i.e. completion of the agent’s assignment
  5. Death of either party
  6. Insanity of either party
  7. Bankruptcy of either party
  8. Passage of time: Where an agent is appointed for a fixed period of time, the expiration of that period terminates his authority whether the agent has completed his assignment or not
  9. Frustration: e.g. changes in the law, subsequent illegality, destruction of the subject matter of the agency etc


See also

Commerce Past Questions





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