02 March 2012 Written by  Awet Hailezgi and Addisu Damtie

Sources of authority

Obviously, an agent is a person who has the authority to act in the name and on behalf of another person called the principal. In other words, it is an authority given to the agent to perform juridical acts as a medium of an intermediary with another person called the third party. By juridical act, we mean acts having effects before the law. These acts performed within the scope of the authority granted, will bind the principal directly. That means the rights and obligations of the contract are that of the principal and the third party. The agent there is only to facilitate the formation of the contract and hence cannot be held liable for the non-performance by both the principal and the third party.

Here the main question to be raised is: what is mean by the authority of the agent.

There is no single whole definition of authority in the existing written materials. Different writers have given different definitions of authority based on the  intended purpose of focus. In ordinary words authority is the right to exercise powers.

Authority, as regards the law of agency, means an ability on the part of the agent to execute certain acts in the name and on behalf of the principal, in accordance with the latter is manifestations of consent to the agent.

It is believed that every relationship may be created having some purposes behind its inception. As agency is one form of relationship, it cannot escape from such facts. Consequently, it is one of the most common legal relationships that enable one to make numerous lawful acts at a time with different persons in different places. That means an agency relationship is created with a view to develop transactions in the absence of a person who wants to stretch his hands to various legally binding acts at the same time. In a nutshell, such agency relationship is introduced in order to avoid transaction barriers that might be result due to time and place limitation.

Having the aforementioned facts in mind, we now proceed towards discussing the concept on source of authority. Thus, as provided under art. 2179 of the civil code, the authority to act on behalf of another may derive from law or contract. Accordingly, the authority of an agent is the power of agency which the agent acquirs by the operation of the law or by a contract concluded between the agent and the principal to this end. The details will be discussed as fuscous.

 

A. Authority derived from a contract.

Agency which is derived from a contractual relationship is the most usual kind of agency. Accordingly, for many authors consent is the basis of the law of agency and it explains why the agent can represent the principal.

Under this topic, we would like to point out that we are referring to the agency arising out of bilateral agreements between principal and agent as articulated under art.2199 of the civil code.

’Agency is 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’’

As we can see from the above provision, an agency is a contract, which is formed between the agent and the principal.

Obviously, under such agency relationship, which arises out of a contract, we find two independent contracts. These are regarded as

¨Internal contract [subordinate contract]

¨External contract [main contract]

 

I. Internal contract [subordinate contract]

Internal contract is a contract that exists between the principal and an agent. Under this contract the principal concludes a contract with an agent under  the auspices that the agent could play an important role in the formation of the main contract. That is the agent could enable the principal to transact with a third party through an intermediary or an agent. This contract is essentially concerned with the rights and duties of such parties. In most cases, this internal relationship is created by contract, although there are cases where it could be created by the operation of the law, to determine the respective duties and rights of the parties. In any manner, one has to basically rely on the terms of the agreements of the parties in order to distinguish their respective duties and rights.


II External contract [main contract]

External contract is a contract that exists between the principal and a third party. This relationship is the most crucial aspect as far as the law of agency is concerned. It is concerned with the rights, duties and liabilities that could be created as between a principal and a third party through the intermediary of an agent. In this regard, for a direct relationship to be created between the principal and the third party, in principle, the agent must have acted in the name and on behalf of the principal within the scope of his power. Once these elements are fulfilled, as regards the effect of the contract, the agent steps out and only the principal and the third party remains to be parties to the contract concluded. Consequently, the rules of an ordinary contract, which could operate between two contracting parties, will be applicable to the principal and third party relationship.

Furthermore, it must be noted that agency is one of the special types of contract and thus, the rules applicable to the formation of a valid contract, are of necessity, applicable to the agency relationship. Accordingly, the elements required under the law for the formation of a valid contract as enumerated under art. 1678 of the civil code are required in agency contract as well. These elements are

  1. The parties must be capable of contracting and give their consent sustainable at law.
  2. The object of the contract must be sufficiently defined, possible, and lawful.
  3. The contract must be made in the form prescribed by the law, if any.

Therefore, the formation of a valid agency relationship requires the existence of certain essential elements. If these elements are not satisfied, the agency relationship becomes invalid. Accordingly, parties to the agency relationship must have the capacity to enter into the contract, their consent must be sustainable at law, the object of the contract of agency relationship must be sufficiently defined, possible and lawful, and finally the contract of agency must be made in a prescribed form if any.

For the sake of clarification, we need to see the basic elements of contract agency under the following subtopics.

  • Capacity

The first essential requirement for the validity of a contract is the capacity of the parties. The literal meaning of capacity is the ability to do something. Since agency relationship is a special type of contract the party who wishes to enter into an agency relationship must have the capacity to do so. Thus, capacity to a contract means competence to enter into a legally binding agreement.

All persons do not have the same legal capacity to make a contract. In some cases; the legal capacity of a person has no relation to the individual’s actual ability. That is, there is a distinction between natural capacity and legal capacity. For instance, natural capacity may itself be either the capacity to own property or the capacity to exercise rights over a property. When dealing with legal, contractual capacity, we mean the capacity to exercise rights, not the capacity to own the property. This is so because, under Art 1 of the civil code,  it is provided that “Human person is the subject of rights from its birth to its death.” Once born, a human baby can acquire rights, even a child merely conceived is considered born and acquires rights wherever his interest so requires provided he is born alive and viable. Therefore, legal or contractual capacity requires only the capacity to exercise rights. That is, the mere possession of rights and duties does not presuppose the capacity of a person to enter into legally binding agreement.

As a rule every physical person is capable of performing acts of civil life unless he is declared incapable by law. That is, every party to a contract is presumed to have a contractual capacity until the contrary is shown. Notwithstanding that, every physical person is presumed to be capable, the law for one reason or another, declares some member or group of society incapable. There are two types of disabilities recognized under the civil code. These are: general disability and special disability. General disability may depend on the age (minority), mental conditions (insanity of persons) or on a sentence passed upon persons (legally interdicted persons). On the other hand, special incapacity may result from the nationality of a person or from functions exercised by him [her].

When we come to the special agency contract, all the parties involved in such contract have to possess capacity, to effect the agency contract. Specifically, as regards the third party, as a party to a contract, it is obvious that he [she] has to possess the legally required capacity if he wishes to create a legally valid relationship. Likewise the principal must be legally capable for the very reason that when he [she] authorizes an agent to perform a certain juridical act on his behalf, he should necessarily be legally capable of performing such acts. That is to say for a juridical act to be valid; the parties must have the necessary legal capacity. On the other hand, one can not enlarge his capacity by appointing an agent to act on his behalf, that is, the principal can not be entitled to a better right by merely authorizing the agent beyond whatever right he can personally exercise.

The question is whether or not an agent must have the legally required capacity to act on behalf of a principal. Let us consider the concept on this issue encapsulated under American Commercial Law Series ", by Alfred W. Bays,

Sec. 9. ‘Power To Act As Agent’

Any person, though without power to contract in his own right may act as an agent for another.

A person must be capable of acting in his own right (sui juris) to be principal, for the simple reason that what he has no power to do personally he cannot acquire power to do by doing it through another. But what one may not do for himself because he lacks capacity he may do for another who has the capacity9 He may not, of course, bind himself upon a contract of agency if he lacks capacity to contract, but he may, if he chooses, actually perform the function of an agent. Thus, minors may act as agents and the contracts made by them in the name of the principals and pursuant to authority are binding upon such principals. The reason is that the agent does not bind himself but acts as a mere intermediary through which the minds of the contracting parties meet, whereupon the agent has performed his office.

Example 4. Mebrahtom sends his office boy to buy supplies on Mebrahtom's credit from Zeneb. The boy orders the supplies according to his authority. This makes a contract between Mebrahtom and Zeneb as binding as though they had contracted personally.

The Ethiopian civil code, under the agency law nowhere specifically provides that an agent has to posses a legally required capacity to act on behalf of the principal. Thus it is far from being clear whether our law requires capacity of an agent. However one argument could arise that the Ethiopian civil code quite exceptionally requires that an agent shall have the legal capacity pursuant to art. 2182 [1] and art. 2230[1] of the civil code. The latter article  for example states as follows,

’Unless other wise agreed a contract of agency shall terminate by the death of the agent or where he is declared absent, become incapable or is adjudicated bankrupt.’’

Reading into this article envisages that the article refers only to an agent who had capacity at the time of authorization but declared incapable at a latter time in which case a principal should not be denied the right to terminate the agency relationship where his agent becomes incapable. Hence, to construe the stated article, as it requires the agent’s legal capacity may be inconsistent with the intention of the drafter of the civil code. Admittedly, what is provided under art.2182 is not different from the above mentioned. Therefore, the requirement of the agent’s capacity even under the Ethiopian law is apparent.

  • Consent

Consent is an agreement that is free from any defect. The freedom of contract is expressed in consent. There are two aspects to consent. First, there must be an agreement on each detail (identity, price mode and day of delivery and payment etc), and secondly consent is the willingness of the parties to be bound by the agreement. If the contract is affected by a defect in consent, it may be invalidated at the request of the party who invokes the mistake.

Many authors believe that consent is the basis of the law of agency, and it explains why the agent can represent the principal. For example agency is defined as the relationship which exists between two persons, one of whom expressly consents that he should impliedly act on his behalf. Similarly, one person to another that the other shall act on his behalf and subject to his control and consent by the other so to act defines an agency.”

However, it is mostly stated   that too much emphasis on consent should be avoided. In many cases consent is the basis of the agent’s power and determines its ambit. But there are many cases, notably the cases of apparent and presumed authority in which the relationship may arise irrespective of or indeed contrary to the real wishes of the parties and to speak of consent in such cases is only to distort the real and usual meaning of the word.

Great emphasis on consent should also be avoided for another reason: namely that it may suggest that all the courts have to do is to look at the facts before them and mechanically determine whether or not they are faced with agency relationship. This is not necessarily the case for the courts have to look at the facts and construe them in a legal manner. The vices of consent for a contract are covered by art.1696-1710 of the civil code. Like any other contracts, if the consent of either the principal or the agent is vitiated by any of theses vices, the contract of agency becomes voidable. The party whose consent has been vitiated can have the voidable contract invalidated according to art.1808 [1] of the civil code.

With regard to the main contract entered into by the agent with the third party, in the name of the principals, art.2189 [2] of the civil code gives the principal the right to avail himself of the defect in the consent of the agent. Likewise, sub article [3] of art.2189 of the civil code entitles the third party to set up the fraud of the agent against the principal. Hence the principal can demand the invalidation of the contract between the third party and himself in accordance with art. 1808 [1] of the civil code on the ground that the consent of his agent has been vitiated during the making of the contract. In the same way the third party that has been defrauded by the agent can request the invalidation of the contract pursuant to art.1808 [1].

Article 2189 of the civil code seems to favor the principal in that it gives more protection to him than to the third party. Under sub art [2] of art. 2189 the principal can avail himself of any defects in the consent of the agent. This sub art does not put a restriction as to the type of defect, which the principal can employ, as a ground for invalidating the contract. On the other hand, under sub art [3] of art 2189 the only defect that the third party can raise against the principal is the fraud of the agent. The defect that the third party can invoke for the purpose of invalidating the contract is limited to only one kind of defect. This means that he cannot invoke mistake, duress, false statement, etc, as a defense against the principal. Therefore it is clear that art. 2189 of the civil code provides less protection to the third party than to the principal.

The Object of Agency Relationship

The object prescribed in the general provisions of the contract is not the object that can be seen or touched, but the obligations undertaken by the parties. So the object of the contract may be positive or negative. The obligations to give something or to do something are positive obligations whereas an obligation not to do something is a negative one.

Under art.1711 of the Ethiopian civil code, contracting parties are free to determine their obligation but their freedom is not an absolute one-it is subjected to such restrictions and prohibitions as is provided by law. On the other hand, under art.1678 (b) of the civil code, the law imposes on the contracting party to engage in a defined, lawful and possible obligation.

The object of the contract must be defined with sufficient precision. A contract shall be of no effect where the obligations of the parties or of one of them cannot be ascertained. An obligation that is not defined by the parties cannot be defined by courts of law. As art. 1714 of the civil code stipulates, the court may not make a contract for the parties under the guise of interpretation.

The object of the contract must be lawful as provided under art.1716 of the civil code, where the obligations of the parties or one of them are unlawful or immoral, the contract ends in invalidation.

Moreover, the object of the contract must be possible of performance. A contract shall be of no effect where the obligations of the parties or one of them relate to a thing or a fact that is impossible and such impossibility is absolute and insuperable, as provided in Art 1715.

As far as the contract of agency is concerned, there is special problem on the question of lawfulness or possibility of its object. However, problems are usually faced with the requirement of the sufficiently defined object. This is especially true with the extent of the power given to an agent. It is extremely difficult to exactly fix the limits of such power. Since the agent deals with third parties usually in the absence of the principal, he has nothing to rely on in determining whether the interest of the principal would best be served by performing a certain juridical act except the power of attorney given to him by the principal in advance. As a matter of fact, it may not be possible to enumerate in the power of attorney all the acts whose performance by the agent would further the interest of the principal. On the other hand, if the principal authorizes the agent to do everything that he thinks promotes the interest of the former, there is the danger of abusing the power on the part of the agent.

In view of this problems, it was necessary to find a solution somewhere in between the two extremes. Consequently under the French law, power given in general terms is construed to include only acts of administration. Under this law, the performance of transaction other than acts of administration, calls for an express power. Hence, an agent cannot alienate or mortgage property without express authority.

The Ethiopian civil code has adopted the same solution similar to the French for the problem. As provided by art. 2203 of the civil code, authority granted in general terms includes only acts of management. Naturally, a question would arise here regarding what are acts of management are Art. 2204 gives the answer to this question. Acts done for the preservation or maintenance of property, cancellation of debts, discharge of debts, sell of perishable things and goods intended to be sold, interalia, are acts of management under art.2204. Art 2205 of the civil code explicitly states that express authority is required for the performance of the transactions other than acts of management. Sub-art two of this article particularly forbids the agent to alienate or mortgage real state property without special authority. Thus an agent with the general power of attorney cannot sell the property of the principal. For this purpose, he needs a special authorization. But if he sells one of the properties of the principal without such authority, the latter will not be bound to the third party. Unless the principal ratifies the act of the agent, the agent will be liable towards the third party in the contract.

Form of Agency Contract

As a general rule, for the formation of an agency contract no special form is required unless the law provides that the contract of agency be made in a specified form (article 1719(2) and 2180 of the civil code), or the parties stipulate  that their contract be made in a special form (article 1719(3) of the civil code).

There is no special requirement for the form of agency contract. It can be made in any form. But if the law for the contract that the agent concludes in the name of the principal prescribes a special form, the authority to make such a contract should be given in the same form. As provided under art 2180 of the civil code, for instance, art.1725 of the civil code provides that a contract of insurance shall be concluded in writing. Supposing principal (P) authorizes the agent to make a contract of insurance for him, the authority for this purpose must be given in writing. Apart from this, the contract of agency can be expressed, that is, written or oral, or it can be implied, that is, it can be inferred from the conduct of the parties as provided under art.2200 [1] of the civil code.

As briefly discussed above these elements of the contract should be fully satisfied before a valid contract of agency can be formed. The absence of any of these elements renders the agency either voidable or void abinitio as the case may be, and it will be subjected to invalidation by the proper authority.

In this case a question would arise what would be the fate of the contract entered into by the agent in the name of the principal with a third party when the agency contract between the principal and the agent is invalidated for the lack of any of the elements of the contract, which we have discussed above? This issue may be resolved in two different ways. First, it can be argued that since the agency contract is the basis of the main contract, the invalidation of the former should automatically cause the invalidation of the latter. This approach renders the position of the third party insecure in that it makes the validity of the contract that exists between the third party and the principal totally dependent on the existence of the contract between the principal and the agent to which the third party has no connection. This problem can be minimized to a large extent by the application of art.1816 of the civil code, which provides that acts done in the performance of a contract shall not be invalidated when the interest of the third party in good faith so requires. Therefore, although the agency contract is invalidated by the principal or the agent or by any other interested parties in accordance with art. 1808 of the civil code, the main contract, which the agent concluded in the name of the principal with the third party in performance of the agency contract, remains in force as between the principal and the third party where the interest of the third party so demands. This is however subjected to the qualification that such third party must not have been aware of the facts that caused the invalidation of the agency contract. Hence a third party, which contracted with the agent knowing the possible causes of the invalidation of the agency contract cannot invoke art. 1816 of the civil code.

The second solution is based on the doctrine of separation. According to this doctrine, mandate [the relationship between the principal and the agent] and representation [the relation of the principal and the third party] are independent. Thus there may exist mandate without representation and vise versa. Therefore since the relationship between the principal and the agent on the one hand, and the relation of the principal with the third party on the other are separate phenomena, the invalidation of the agency contract should not by itself constitute a ground of invalidation for the main contract.

According to the above arguments, it is better to adopt the second solution in Ethiopia. because, in the first place, the solution is in line with the doctrinal basis of the Ethiopian law of agency, which is the doctrine of separation, and secondly compared to art.1816 of the civil code, it affords more protection for third parties that the protection under this solution is not restricted by the requirement of good faith on the part of the third party. In other words, since this solution maintains the main contract effective, despite the invalidation of the agency contact, third parties who are aware of the fact that caused the invalidation of the agency are protected as well as those who are ignorant of such facts during the conclusion of the main contract. This seems logical because, as the third party has no connection with the contract of agency, the fact that he is aware of the possible causes of invalidation of such contract should not affect the validity of the contract between the third party and the principal.

 

B. Authority by Judicial Act

A different kind of source of agency is authority granted by the court. That is, an authority to act on behalf of another may emanate form the court’s decision. Courts, upon evolvements of some conditions, may appoint some other person to do activities pertaining to the other. The provisions governing court authorization are provided here in after:

This situation is not an agency either by a prior agreement of the parties or by the lawmaker. But it arises by the order of the court upon application. This case of agency is governed by Arts 2253-2256. The person appointed by order of the court is called the curator. Thus the parties involved in here are the person represented and the curator. This appointment of curator is usually necessitated when the person whose interest (s) are (is) to be represented is not in a position to appoint an agent by reason of being a way, ill or any similar causes (Art 2255). In these cases only limited persons (relatives, spouse and nobody) shall apply to a court with jurisdiction for the appointment of an agent to protect the interest of the person to whose benefit a curator is required. (Art 2254).

Only relatives and/or spouses have these rights in order to protect the interest of the person represented against misuse of his interest. The person to be appointed is going to carry out those “acts as are of an urgent nature” [Art. 2255(2)]

The curator is expected to work for the interest of the person represented, and the court may give directions on how to carry out the obligations and may impose liability on the curator. The curator has to inform his appointment as soon as possible to the person he/she represent. The curator is a contractual agent for all the rights and duties [Art. 2256]. Because of lack of space and time we cannot write down the relevant provisions of this subsection. Thus, you are advised to refer frequently to the Civil Code provisions, relevant and cited above.

Article 2253 Principle

The authority to do an act or acts of certain kind on behalf of another may be given by the court to a person here in after called a curator.

Article 2254 application for appointment

1) an application for the appointment of a curator may be made to the court by a relative or by the spouse of the person to be represented.

2) It may be made by no other person

Article 2255 Decision of the court

1) The court shall not grant the application unless the person to be represented is not in apposition to appoint

 

C. Authority Derived from the Law.

In most cases, the source of agency is authority of an agent derived from the agreement of the parties, that is, a bilateral agreement between a principal and an agent. Apart from this usual source, agency relationship could emanate from the operation of the law, that is, agency authority is derived from the law itself. Consequently, the consent of the principal has no role in creating the agency relationship and hence it is beyond the principal’s consent that agent –principal relationship comes into existence. This usually happens where a person to be represented is not in a poison to appoint his agent for one thing or another. Moreover, it is due to the necessity to safeguard the interest of the person to be represented. Further, agency is created by operation of the law, as opposed to agency created as a result of agreement of the principal and agent; there is already a single contract, that is, a contract which is concluded by the representative, on behalf of the one represented, with the third party. Hence, the internal relationship between the representative and the represented, in this case, is legal and not contractual since it is created by the operation to the law.

In spite of the legal relation created between the representative and the represented, the rights and duties arising there from are governed by the provision pertaining to agency contract once the law has established the relation.

Last modified on Wednesday, 02 May 2012 13:05