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1.1 The Need for Agency
Issue for Discussion: consider the following set of facts
It is plainly discernable from the very first article of the Ethiopian civil code that the
human person is the subject of rights and duties from its birth to its death.
similar fashion, artificial persons are also the subjects of rights and duties from their
formation (registration) to their liquidation (cancellation of register).
per the dictations of the civil code, every person is presumed capable unless expressly
declared incapable by law. i.e., s/he is presumed to have the necessary legal capacity
to exercise the attribute features of his or her legal personality or to personally take
care of his or her interest.
From this logic a question should emanate that, so far as every person is capable of
personally exercising his or her own affairs in everyday life (which is the most
preferable), why should there be a need for representation or agency by another
person (who is even presumed to have his own personal engagements)?
The practical experience (legal or otherwise) in Ethiopia or elsewhere reveals that the
following are the major rationales that triggered the need for representation by another
It helps to overcome limitation (constraints) of time and place: imagine
that you are a prosperous business person running your business throughout
the country and it is also in the nature of the businesses you are running that
they require your immediate attention or else the consequence will be
unbearable. On the other hand, nevertheless the modern commercial world is
too complex, you are just a human person that can only be at a place at a given
time or do a thing at a time. In such situations, the basic way out to escape
bankruptcy would be hiring an agent who act on your behalf and help you to
overcome such inherent limitation.
Read Article 1 of the civil code of Ethiopia
Read Arts. 117 to 121 of the com. code. The immediate implication of registration of a business
organization is legal personality and cancellation of registration is winding up of it.
Consult Art. 192 of the civil code of Ethiopia
It helps to overcome lack of business knowledge or experience: it is an
open secret that knowledge and experience are not the only inputs to start a
business. However, with them added to the menu of a trader, the business
venture can get more attractive. In this regard, hiring an agent (a professional)
enables one to perform certain tasks which s/he has neither the required
knowledge nor experience to perform by themselves.
It is a tool to overcome the pitfalls of incapacity: as mentioned above, for
various reasons the law has precluded some groups of persons from personally
exercising their rights and duties.
However, it is not fair that they should
remain remedy-less for they are at least possessors of rights and duties as a
person. Here emerges the necessity of agency that these groups of persons can
be capable of safely exercising their rights and duties (take care of their
interests) via means of representation by other capable individuals.
The very nature of artificial persons: it is a clear fact that such persons are
endowed with legal personality artificially (as opposed to naturally) for the
sake of convenience in control and other rationalities. Otherwise, they are non-
living things (associations of capital) that lack the necessary mental capability
to analyze the cost and benefit of their transaction. Hence, it is inherent in their
very nature that they need to be represented by physical persons who will act
on their behalf and deal with third parties. For instance, the founders,
managers, directors, and secretaries, of all business organizations are natural
persons who are authorized to act on their behalf.
Read Arts. 2234, 2251 for special agents called commission and forwarding agents, respectively and
Art. 44 of the com. Code for commercial agents.
According to Articles 192-194 of the civil code there are two types of such disabilities: General
disabilities (which depend on the age or mental condition of persons or on sentences passed upon them)
and Special Disabilities (which depends on reasons of their nationality or functions exercised by them).
Refer to Arts. 204-209, 263, and 359 of the civil code
Read Art. 216 of the com. Code. It states that a business organization shall acquire rights and incur
liabilities by its agents in accordance with the provisions relating to agency. Read also Arts 35-36 of
1.2 Sources of Agency
The representative capacity (power of attorney) to act on behalf of another person
(artificial or natural) may emanate from the following basic sources:
1.2.1 The Law
It is obvious from the reading of Art. 2179 of the civil code of Ethiopia that, the
authority to act on behalf of another person may derive from the law. This is the case
where the law appoints an agent to act on behalf of another person for reasons like the
protection of the principal that may otherwise be at stake if s/he acts by himself or
herself. This become crucial in case the principal is declared incapable by law.
other situation where the law appoints an agent is the case of agency of necessity or
In this regard the very nature of artificial persons that
necessarily dictate their representation by natural persons to perform their day to day
activities is typical.
The basic source of agency is a contract. As different from the first, this is a
relationship created between the agent and the principal based on their genuine
contractual engagement. The contract should, among other things, define the scope of
the representative capacity of the agent and its duration.
Art. 192 of the civil code states that, every physical person is capable of performing all acts of civil
life unless he is declared incapable by the law. Read also Arts. 193 and 194 of the civil code
Read Arts. 2257 to 2265 of the civil code. It is an agency established by law where an individual
standing from the middle of nowhere and without any express appointment by the principal takes care
of the affairs of another person being dictated by necessity or otherwise.
Read Art. 216 (2) of the com. Code, which dictate that a business organization shall act in legal
proceedings by its agents.
Art. 2199 of the civil code states that, 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
1.2.3 Decision of the Court
This is a situation where the authority to do an act or acts of a certain kind on behalf
of another emanates from the decision of a court. Such types of agents are known as
1.3 Definition of Contract of Agency
Per Article 2199 of the civil code,
Agency is a contract whereby 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 understand from the above definition, agency is a contract.
It is actually a
special type of contract which expressly deals with the relationship between the agent
and the principal. For contracts are the cornerstones of the economy the law has
stipulated stringent requirements of validity. Hence, agency as a contract is expected
to fulfill the essential validity requirements for the existence of a valid contract
mentioned under article 1678 of the civil code in relation to capacity, consent, object
The other point to discern here is, this contract refers only to the internal contract
concluded as between the agent and the principal and it basically governs their
bilateral relationship. However, this contract is the main input for the conclusion of
another contract, called external contract, as between the agent and another third
party. It is understandable that the purpose of appointing an agent is to deal with third
parties via means of an intermediary.
The other point of emphasis should be how many parties are there in a certain agency
relationship? Before one dares to answer this question, as mentioned above, s/he
should be aware of the fact that there are two types of contracts under a certain agency
Refer to Arts. 2253 to 2256 of the civil code. Such appointment is however up on complaint. Read
also Art. 950 of the civil code for the appointment of a `judicial-liquidator of succession' by the court.
Read Art. 1675 of the civil code which defines a contract as, a contract is an agreement whereby two
or more persons as between themselves create, vary or extinguish obligations of proprietary nature.
Read also Arts. 2200-2201 of the civil code
relationship. Having this in mind the following are the parties to a certain agency
The person represented- the principal.
The representative- the agent.
The person with whom the agent concludes the external contract- the third
Technically however, one should raise a question as to whether the agent is really a
party to the external contract concluded between the agent and the third party? And
the answer is obvious, i.e., the agent is not presumed to be a party to a certain agency
relationship for s/he is a mere facilitator or mediator as between the principal and the
third party with whom the contract is concluded. Otherwise stipulated, the agent does
not assume any personal liability or benefit from the transaction as far as s/he is
representing the best interest of the principal or act on behalf, in the name of and the
exclusive interest of the principal.
Finally, we should understand that the acts which the agent undertakes to perform on
behalf of the principal are juridical acts- acts that are legally binding or otherwise
constitute a fault and entail legal liability. However, in the normal course of events
(without personal fault on his part), the agent is not liable to the performance of the
contract contracted with the third party.
1.4. Scope of Representation
By scope of representation we are indirectly referring to the `object' of the internal
contract. The main object of the internal contract is not different from defining the
depth and nature of the power of attorney vested on the agent. That means, the agent
can act and bind the principal if and only if he performed those powers vested in him
Read Art. 2189 of the civil code
You may read Art. 2212 of the civil code. However, s/he shall be liable for non-performance, if they
are aware of the insolvency of the third party or ought to have known it at the time of making the
by the contract of agency. Though the scope of agency shall be expressly stipulated in
the contract, which may not be always the case. In such cases, the scope shall be
determined or fixed according to the nature of the transaction to which it relates.
non fulfillment of this obligation would be against the interest of the principal for it
will encourage unauthorized agency.
1.4.1 Complete Representation
The agent is deemed to completely represent the interest of the principal in the
If the agent acts in the name and on behalf of the principal and the third parties
with whom the agent is contracting are aware of the fact that he is an agent of
another person. This is the case of disclosed principal.
If the agent is acting with the scope of representation vested in him by the
internal contract. And
If the agent is representing the best interest of the principal or acts with the
exclusive interest of the principal.
You should be aware of the legal implication of complete representation that, if the
agent completely represents the principal, s/he would not assume any personal
liability and all the acts of the agent bind the principal towards the third party as if
they are performed by the principal himself.
In all other case however, the agent is
presumed to have acted in his own name and behalf which will make him personally
liable to the third party with whom he is contracting. The latter case amounts to the
cases of undisclosed principal.
1.4.2 Types of Agency
According to Article 2202 of the civil code, there are two types of agency. These are
General and Special types of agency. Now let's discuss them as follows:
Read Arts 2187, 2202 and 1713 of the civil code
Read Arts. 2197 and 2198 of the civil code
Read Art 2189 of the civil code
is a situation where the agent is vested with the power to deal with all the affairs of
the principal of a particular type or in a particular place. Such agents are agents who
are in general authorized to represent the principal. One could say they are
trustworthy persons to the principal in that the principal authorizes them to entirely
represent his interest. As a result, such agents are only authorized to perform acts
called ACTS OF MANAGEMENT on behalf of the principal.
What kind of acts do you think are acts of management? The following are some
examples of acts of management:
Acts done for the maintenance or preservation of property;
Lease for terms not exceeding three years;
The collection of debts that are matured or exigible;
The discharge of debts;
The investment of income; and
The sale of crops or goods intended to be sold or perishable commodities
It is an agency whereby the agent is authorized to transact or deal with specific
business affairs of the principal.
Such agents are mostly professional agents who
expertise in cutting a deal for a specific transaction. As a result most of the acts done
by such agents are ACTS OF LIQUIDATION or DISPOSAL. Such agents are
prohibited from performing acts called acts of management. Besides, their service as
an agent is deemed to be of a short term (until disposal). The other thing one should
be aware is special agency shall confer on the agent authority only to conduct the
Read Art. 2204 of the civil code
Read Art. 2202 (2) of the civil code
affairs specified in the contract and their natural consequence according to the nature
and usage therein.
What kinds of acts, do you think are acts of disposal? An agent may not deal with the
following acts without a special power of agency
Alienation or mortgage of immovable property;
The investment of capital
Sign bill of exchange
Effect a settlement; and
Defend an action on behalf of the principal.
1.4.3 Special Types of Agents
a. Commission Agents: is an agent (natural or juristic person), who independently,
professionally and for gain, undertakes to buy or to sell in his name, but on behalf of
the principal, goods, movables or any other thing of a similar nature (securities or
other fungible things).
b. Forwarding Agents: are agents, which may be a carrier or a shipper who
undertakes to act on his own name but on behalf of another person, called the
principal, into a contract for the forwarding of goods.
c. Curator Agents: this are agents appointed by a court to represent and perform
legally binding acts on behalf of another person up on application to that effect by the
relatives or the spouse of the principal.
Consult Art. 2206 of the civil code
Refer to Art. 2205 of the civil code
Read Art. 216 (2) of the com. Code of Ethiopia
Read Arts. 60 of the com. Code and 2234 of the civil code
Read Arts. 2251-52 of the civil code
d. Commercial Agents (brokers): is an agent (a natural or artificial person) who
independently, professionally and for a gain, brings parties together for the purpose of
their entering into an agreement such as contract of sale, lease, insurance or carriage.
1.5 Duties and Liabilities of the Parties to the Contract of Agency
It is obvious that agency is a contract in which at least two parties bilaterally counter
oblige themselves to perform certain obligation towards each other. Hence, both the
agent and the principal in a certain agency relationship have their own respective
duties in need to be discharged according to their agreement in particular and the law
in general. i.e., failure to discharge by either party, if any, entails liability.
1.5.1 Duties and Liabilities of the Agent
The following are the main duties of the agent in a certain agency relationship:
The duty of strict good faith: the agent shall act with strict good faith
towards his principal. This duty, among other things, requires the agent to
disclose to his principal any circumstance which would justify the revocation
of the agency or the variation of its terms.
The duty to act in the exclusive interest of the principal: as mentioned
earlier the agent is a mere facilitator. s/he shall not claim to have any personal
benefit in their engagement with a third party on behalf of the principal. As a
result the agent is required to act in the exclusive interest of the principal and
s/he may not, without the latter's knowledge, derive any benefit from any
transaction in to which s/he enters in pursuance of his or her authority.
Moreover, the agent may not make use to the detriment of the principal of any
information obtained by him in the performance of his duties as an agent.
The thing is, though it is normal that in due course of his activities the agent
Read Art. 2208 of the civil code
For a better understanding cross refer Arts 2209, 2187-88 of the civil code
may face a conflict of interest, however, s/he should refer it to the ultimate
decision of the principal.
The duty of accounting: this is the other vital duty of the agent for mostly the
activity of agents is related to the finance of the principal. Hence, it is the duty
of the agent to account to the principal for all sums received by him and all
profits accruing to him in due course of his employment, notwithstanding that
the sums he received were not owed to the principal or there being existed an
adverse claim to the monies collected. Besides, where the agent converted to
his own use monies he owed to the principal, he shall be liable for the payment
of interest as from the day of such use, without it being necessary that notice
be given to him. Finally, this duty is deemed to be discharged when the
accounts of the agent are duly approved by the principal.
The duty of diligence: the office of the agent, though voluntary in nature,
creates a fiduciary relationship with the principal. Hence, the agent is expected
to show the qualities of care, interest and fitness in his activities. Two folds of
diligence may be expected from the agent. Firstly, the agent shall exercise the
same diligence as a bonus pater familias in carrying out the agency as long as
he is entrusted therewith.
This is called the objective standard of duty
expected from a paid or professional agent. Secondly, the agent is required to
show the same degree of diligence or care as to his own or that he show in due
course of taking care of his own personal affairs. This is called the subjective
standard of care mostly expected from a gratuitous agent. Finally, the agent
shall be liable for fraud and for defaults in the performance of his duties.
The duty of `no delegation' of authority: it is inherent in the nature of the
obligation of the agent that s/he should perform his activities personally. As a
result, the rule is the agent shall carry out the agency in person unless he is
In this regard, you can further deepen your knowledge by referring to Arts. 30, 40, 47, and 55 of the
Cross refer to Arts.2210 and 2213-14 of the civil code.
This is a Latin verse to mean, as a good father or leader of the family
Refer to Art. 2211 of the civil code
authorized by the principal to appoint a substitute or a delegate. However,
such delegation may be impliedly accepted where from usage it appears a
matter of indifference whether the agent acts personally or by the deputy or
where the interest of the principal so requires or when unforeseen
circumstances prevent the agent from carrying out the agency and he is unable
to inform the principal of these circumstances.
On the other hand, in the following circumstances the agent shall be personally liable
towards the third party he is dealing with and/or the principal:
In case of undisclosed or partially disclosed principal: this is a situation
where the agent acts on his own behalf with third parties, notwithstanding the
fact that such thirds parties know that he is an agent of somebody else or not.
Such an agent shall personally enjoy the rights or incurs the liabilities deriving
from the contracts he makes with third parties and his acts whatsoever may not
bind the principal.
In case the agent abuses his authority: this is against the essence of fixing
the representative capacity of the agent by the internal contract of agency
concluded between the agent and the principal. Accordingly, the agent shall be
liable to contracts made by him in the name of the principal outside the scope
of his authority. However, it is up to the discretion of the principal to either
opt to ratify or repudiate such ultra vires acts of the agent.
In case the agent acts on a lapsed authority: sometimes the parties to the
relationship may determine the duration of the viability of their relationship by
fixing a period of time to that effect. That means the agent can legally
represent the interest of the principal only and until the lapse or expiry of such
Cross refer Arts. 2215 and 1740 of the civil code. This goes with a maxim that, `the Delegate may
not Appoint a Delegate'
Read Arts. 2197-98 of the civil code
Refer to Arts. 2190-2194 and 2202 of the civil code
period. Otherwise, if the agent acts on behalf of the principal after the expiry
of the duration of his power of representation, s/he shall be personally liable.
In case of unauthorized agency: an agent who undertakes, with full
knowledge of the acts, to do or manage the affairs of another person without
having been appointed as an agent shall be personally liable towards the third
party to the performance of the obligation he undertake to discharge.
nutshell, the acts of such an agent shall not bid the person whose affairs have
been taken care of. However, the principal may exercise either of the
following options towards such acts of the agent and thereby bind himself or
not for the deeds of the agent towards the third party:
Ratification: this is the situation where the principal approves or ratifies the
acts of the agent, nevertheless they are unauthorized. This happens, mostly, in
cases where the interest of the principal required that the management be
undertaken as a necessity. Ratification has a legal effect of making the
unauthorized acts of the agent binding against the principal.
Repudiation: this is a situation where the principal rejects or disapproves the
unauthorized acts of the agent. This automatically entails the personal liability
of the agent towards the third party. The more the acts of the agent put the
interest of the principal at stake, the more the principal tends to repudiate
The agent shall be generally liable towards the principal for his failure to
discharge his obligation according to the contract of agency. i.e., failure to
discharge all the duties of an agent mentioned above makes the agent
personally liable to the principal. For instance, bad faith in due course of
discharging the activities; in case of conflict of interest with the principal (in
case the agents acts on behalf of multiple principals other than the one or the
Refer to sub article 2 of Art.2190 of the civil code
Read Art. 2257- 58 of the civil code.
Refer to Art. 2264 of the civil code
Read Art. 2265, 2193 of the civil code
agent contracts with himself on behalf of the principal); failure to disclose
important information; failure to account his activities or to submit report of
the management of his affairs up on demand or periodically; fraud and
defaults in his work; the agent shall be liable for the acts of the person whom
he appointed or delegated without authorization as his substitute as if they
were his own; the agent is also liable for the care with which he selected his
substitute and gave him instructions, even with authorization of the principal
to appoint a delegate.
1.5.2 The Duties and Liabilities of the Principal
Most of the duties of the principal towards the agent are related to the fulfillment of
various types of payments and security of resources of the agent who is acting on his
behalf. On the other hand, the basic duty of the principal towards the third party is
performance of the obligation undertaken by the agent towards the principal.
The following are the main duties of the principal towards the agent:
The duty of remuneration: remuneration is a commission paid to the agent
for the activities exercised by him. The problem is, due to either the voluntary
nature of the office or the fiduciary nature of the relationship per se, the agent
cannot claim remuneration as of right unless, such payment is contractually
agreed upon or the acts are performed on a professional level (all cases of
special agency) or it is customary to do so in the nature of the activities done
by the agent. Moreover, though such payment may be contractually agreed
upon, it is subjected to the full discretion of courts to either reduce or increase
it, if it appears to be excessive or out of proportion to the services rendered by
The duty of Reimbursement: it is the main duty of the principal to advance
to the agent the sums necessary or entirely the resources needed for the proper
performance of his activities. Otherwise, if the acts of the agent are left behind
due to the non-resourcefulness of the principal the latter shall be liable to the
Refer to Arts. 2187, 2188, 2197, 2208, 2210-2216 of the civil code
In this regard you may refer to Arts. 2219- 20 of the civil code.
third party. This being the case however, if the agent happens to have covered
such outlays or expenses by himself, then it is the duty of the principal to
reimburse to the agent such costs incurred in the proper carrying out of the
agency. The duty of reimbursement also includes the payment of interests by
the principal, which are due from the day when they were incurred.
The duty of Indemnification: this is also another type of payment, but for a
different reason. This duty obliges the principal to make good (compensate)
any damage of the agent sustained in the course of carrying out of the agency
and which was not due to his own default. So the only Burdon of proof
required from the agent would be to prove that the damage was sustained
while practicing his agency.
It is similar for all the above types of payments required from the principal
that, first; they are not subjected to off-set by the principal under the pretext
that the transaction was unsuccessful and second, until the payment of the
sums due to him by reason of the agency, the agent shall have a lien on the
objects entrusted to him by the principal for the carrying out of the agency.
Do you think the agent can exercise his right of lien on the documents
evidencing the agency? Refer to Art. 2184-86 of the civil code.
On the other hand, the following are the main liabilities of the principal
In case he informed a third party of the existence of the power of attorney but
failed to inform him of the partial or total revocation of such power;
Refer to Art. 2221 of the civil code
Read Arts. 2223- 24 of the civil code of Ethiopia.
Read Arts. 2192-2195, 2212, 2222, 2225, 2265 of the civil code
He failed to ask the agent to return the document evidencing the power of
attorney and failed to seek a judicial decision to the effect that such document
He caused in any other manner, in particular by his statements, behavior or
failure to act, a third party to believe that the person with whom he was
dealing was authorized to act on behalf of the principal.
He is liable for the performance of the obligation towards third party.
In case of plurality of principals, the principals shall be jointly liable to the
agent for all the consequences of the contract.
1.6 Grounds for the Termination of Agency Relationship
It is a universally known fact that everything that has a beginning has an end and agency
relationship is not an exception to it. The following are the main grounds of termination
of a certain agency relationship:
Revocation of agency by the principal: it is within the full discretion of the
principal to restrict or revoke the representative capacity (the authority he gave to the
agent to make contract in his name) of the agent at anytime and to force the agent to
restore to him the written instruments evidencing his authority. However, unless
otherwise where the date was agreed upon in the principal's interest, the he is at duty
to indemnify the agent for any damage caused to him by the revocation where such
revocation occurs prior to the agreed date or under conditions detrimental to the
agent. If the principals are plural, the revocation of the agent may be effected only by
the agreement of all the principals.
Renunciation by the agent:
this is the action of the agent where he renounces or
resigns his office voluntarily. In this case however, the agent is at duty to give
notice of his resignation to the principal. This is due to a legal presumption
that the agent is deemed to properly resign from his duties if and only if he is
replaced by another. In a similar fashion, if such renunciation is detrimental to
Cross refer Arts. 2226-27, 2183-84 of the civil code
the interest of the principal, it is the duty of the agent to indemnify the
principal unless the latter cannot continue the performance of his obligation
without himself suffering a considerable loss.
Death or incapacity of the agent:
in the absence of an otherwise agreement a
contract of agency shall terminate by the death, declaration of absence,
bankruptcy or incapacity of the agent. In such case the principal has a right to
information about the happening by the heirs or representatives of such agent
and the latter are at duty to take all the necessary steps to protect the interest of
Death or incapacity of the principal:
in a similar fashion the death, absence,
bankruptcy or incapacity of the agent terminates the agency relationship. In
this case however, for the agent is still alive he has a duty of serving as a care-
taker until the legal representatives of the principal take over the activity.
Expiry of the duration of agency: if the contract was made for a defined period of
time, the relationship terminates with the lapse of the period of time mentioned in the
Achievement of Object:
if both parties perform properly and achieved the very
purpose of their relationship there will be no reason for the continuation of
Read Art. 2229 of the civil code
Read Art. 2230 of the civil code
Refer to Arts. 2232 and 2182 of the civil code
One can infer this from an otherwise reading of Art. 1821 of the civil code
Read Art. 1806 of the civil code
17 of 17 pages
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- Samuel Maireg Biresaw (Author), 2018, The Ethiopian Law of Agency, Munich, GRIN Verlag, https://www.grin.com/document/388465