Law of Agency Teaching Material

Law of Agency

Understanding the Ethiopian Law of Agency: A Comprehensive Overview

The law of agency is an indispensable part of modern social and legal order, allowing individuals and legal entities to extend their sphere of activity beyond their personal physical or mental limitations. At its core, agency is a relationship where one person (the agent) acts on behalf of another (the principal) to bind that principal through legal transactions with a third party.

Why the Law of Agency Exists

The institution of agency serves several critical practical needs:

• Overcoming Limitations: It allows individuals to overcome constraints of time and space, enabling them to perform multiple transactions in different locations simultaneously.
• Expertise: It facilitates the use of specialized knowledge and skills that a principal may lack.
• Legal Entities: It provides the mechanism for business organizations and other legal persons—which lack physical minds—to exercise rights and duties through human representatives.
• Incapacities: It allows for the representation of minors or interdicted persons who lack the legal capacity to perform juridical acts themselves.

The Ethiopian Approach: The Theory of Separation

Ethiopian law adheres to the Theory of Separation, a concept primarily derived from civil law systems. This doctrine strictly distinguishes between:

1. The Internal Contract (Mandate): The relationship and agreement between the principal and the agent.
2. The External Contract (Representation): The relationship between the principal and the third party established through the agent.

Sources of Authority

An agent’s power to bind a principal can derive from three primary sources:

• Contract: A bilateral agreement where the agent agrees to represent the principal.
• Judicial Act: Authority granted by a court, such as the appointment of a curator to manage the affairs of someone who is ill or absent.
• The Law: Authority that arises by operation of law to safeguard the interests of a person unable to represent themselves.

Scope of Power: Management vs. Disposition

Understanding the extent of an agent’s authority is crucial to avoid unauthorized acts.

• General Agency: Conferred in general terms, this only grants the agent the power to perform acts of management, such as preserving property, collecting debts, or selling perishable goods.
• Special Agency: This requires express authorization for acts of disposition. Examples include alienating or mortgaging real estate, investing capital (as opposed to income), making donations, or initiating legal proceedings.

Obligations and Termination

The relationship imposes strict duties on both parties. The agent must act with the strictest good faith, exercise due diligence, and provide accurate accounting of their management. In return, the principal must remunerate the agent (if agreed or customary), advance necessary funds, and indemnify the agent for liabilities or damages incurred during the proper execution of their duties.

An agency relationship can be extinguished through:

• Agreement: Mutual consent to end the contract.
• Unilateral Act: Revocation by the principal or Renunciation by the agent.
• Operation of Law: The death, incapacity, or bankruptcy of either the principal or the agent generally terminates the relationship, unless it is a commission agency where heirs may continue the commercial activity.