Genesis and Development of the Law of Agency

The concept of agency representation in the sense it is understood now emerged around the twelfth century (A.D) along with the salve and slave owner’s relations. Since the early time, salves were considered as a mere chattel without any rights. It was logical to hold the owner legally liable for the acts of his slave, especially if the acts of the slave were done based on the direction of the slave owner. Hence this slave and slave owner relationship paved a way for the creation and the concept of representation. And during this time, the responsibility of a principal for the acts of his agent or servant was commenced.

The concept of agency developed independently in the civil and common law legal systems. However, the rudimentary rules of agency representation as it is understood today became visible in both legal systems around the end of the twelve-century and early thirteen centuries.

Although, the concept of agency representation appeared around the end of the 12th century, its rules came to be arranged and significant, in order to facilitate commercial centers in the 19th century. Where business activities widely spread in most parts of the world especially in Europe commercial transaction was highly developed in volumes. Owing to this reason the rules of agency started to be organized and collected from the various fields over which they were distributed. (Law of agency, Am. J: comp. law vol.6 (1957) pp.165)

In spite of its high development, the Roman law did not outgrow an overall theory of agency in their law of contract, and even ‘’it was utterly unknown in the early law of contracts and never in the entire history of the  Roman law did it reach the importance it has attained in the English law. During the time where the Romans were unaware about the theory of Agency, the English law of contract developed the theory in a complete manner and businessmen used to carry out their business activities through intermediaries or agents.

One among the main reasons why the Romans failed to develop a complete theory of agency representation in their contract law as that of the English law was that ‘’ the Romans never acknowledged a general rule of their private law which declared that a person acting as an intermediary should be capable of creating valid contractual or commercial relations between the principal and the third party.’’(W.Muler-Freinfels, Legal Relations in the Law of Agency: Power of Agency and Commercial certainty Am. J: comp.law V.13 1964 pp.195)

With respect to the importance of commercial activities in the Roman Empire and the distance between commercial centers and slow means of communication, the notion of agency representation was not well developed in their contracts law. Among the basic governing principles that was expressed in the roman contract law which has created the major obstacle for the rapid development of the modern concept of agency law was that “rights and liabilities were acquired or incurred only by the persons making the contract; third parties are not considered. To the old contracts like Manicipatio, cessio injure, and stipulatio, the doctrine of agency never applied. The formal ceremonious words employed to create such obligations bound only the persons who actually uttered them. It was the act of the individual, his solemn declaration that bound him, and according to the theory of the old Roman law one could not speak for another but only for oneself. (William L. Burdick, The principles of Roman Law and their relation to Modern Law, 1938, pp.424)

While the Roman law of agency representation was in its lower stage, the English law of agency contract was found in a higher stage and it was well developed. In relation to this, in the English law of contracts, the doctrine of principals and agent was based upon three elemental propositions. These were:

1. The creation by contract, express or implied of the relation,
2. The non liability of the agent for contracts made in the name of his principal, and
3. The liability of the principal for contracts made by his duly authorized agent.

According to this, when it is compared with the English law of contracts, the Roman law of contracts never developed the theory of agency to such an extent as the English law of contracts had achieved.

In order to have a broader concept on the genesis and development of the law of agency, let’s discuss the genesis and development of the law of agency in the following legal systems.

Theories and Development of the Law of Agency under the Common Law Legal System

The up-to-date concept of agency in the common law legal system is the outcome of many influences in its history. It is believed that agency was not part of the common law until the 13th century. However, owing to the master and servant relationships which emerged around the end of the12th century and beginning of 13th century.

While we discuss the historical development of the theory of agency in the common law legal system, we can observe that, three main standards gave raise to the effective development. These factors are:

1. The emergence of the class of attorneys in legal matters. Which were regulated by ordinance 1292
2. The impact of cannon law: and
3. Custom of merchants, which at that time was already engaged in lively trade in Europe, created the introduction of some concepts of agency.

Owing to the influence of mercantile law by which commercial activities were developed in volume, the common law developed the principle that a principal was in direct contractual relation with third parties in which such principle laid down the foundation for the theory of agency. The development of such principle makes the principal liable to third persons. This liability was with regards to the goods bought or acquired by the agent, on the basis of which the principal had thereby obtained the use and benefit of the goods.

The genesis of such principle, which makes the principal in direct contractual relationship with third parties in a contract made by his agent, emerged from the case of Costace V. Forteye, which was decided in 1389 by the major and elder men of the city of London. Under this particular case, an apprentice and attorney of a London merchant bought wine from a French merchant for his master (Fortenye); and when he failed to satisfy the full payment to the seller, the agent was committed to prison. However, the agent (apprentice) i.e. Costance, alleged that it was his master who sent him to buy the wine and then the master approved the bargain. The Mayor then ordered the master (defendant) to satisfy the full payment to the French seller and set the plaintiff free from prison. The decision of the Mayor was based on the ground that the apprentice bought for the use and benefit of the master. (Willam Holdsworth/sir/, A History of English Law vpl 8, 1966, pp223)

The point that we can understand from the above case is that, a direct claim by a third party was admitted against the principal for contracts made by his agent for the benefit of the principal.

The trend of being represented through an agent spread somehow readily in the course of the 12th and 13th centuries owing to the allied influence of mercantile necessity and cannon law. In addition to this the development of trading companies, which must necessarily act through agents, helped its further development.

In the medieval period, the idea that it is possible to make a contract through an agent, and that it is possible for a man to ratify for a contract made on his behalf through an agent was recognized by the common law. The common law also, accordingly, recognized that on such contracts by an agent on behalf of his principal, it was to be held that the principal and not the agent was liable ‘’ not only when the agent had express authority to do the particular acts, but also when he acted within the scope of an authority to do acts of a particular kind.’’(William Holds worth/sir/, A History of English Law vole 8, 1966, pp223)

During the 17th and 18th centuries two classes of agents emerged in Europe as a result of the influence of mercantile law, which was closely related with commercial law. These were brokers and factors.’’ Brokers were intermediaries, through whom two persons were brought into contractual relations, and in which they were also independent persons.’’ However, ‘’Factors were essentially employees of their master who deal more faithfully for their masters in buying and selling of all commodities or in moneys by exchange.’’

In line with the wide recognition of agency contracts in the common law, which grew in line with the rapid development of trade, a clear distinction between the relations of master and servant was made in order to distinguish from the relations of principal and agent. Accordingly, the agent does not work for the principal physically, nor is he subject to the control of the principal in his physical actions. (William Holdsworth/sir/, A History of English Law vole 8, 1966, pp223)

The servant, on the other hand, was recognized, as one who, by agreement, whether gratuitously or for reward, gives his service to another. He ‘’has no power to bind the master in contract and he works physically for another, subject to the control of the master.’’

Theories and Development of the Law of Agency under the Civil Law Legal System

(Law of Agency, Am. J: comp. law vol6 1957, pp135)

In comparison to the common law concept of agency, the institution of the modern concept of contractual agency emerged and developed slowly in the civil law legal system. While ‘’the Roman law of contract was, of course, found in its high scientific level, it never developed a complete theory of agency.

As it is mostly stated, among the major impediments that hampered the rapid development of the modern agency principles in the Roman law was ‘’ the nature of commercial contract which involves only two persons.’’ This principle which emphasized a strict personal tie between the contracting partiers was the governing rule of the old Roman contract law which did not admit the triangular relations of principal, agent and third party in business transactions.

In addition to the above factor, the reason that hindered the development of the evolution and the inadequacy of the outcome may have been due to the fact that, “business agents were often slaves and that within the family the law yielded family satisfaction results at quite an early stage of its history.’’(Barry Nichlsa, An introduction To the Roman Law, 1965, pp.201) Owing to this condition, any benefit or property accrued to the patter families (father or head of family)

The concept of agency started to develop in the Roman law, however, in the 15th and 16th centuries and slowly had to recognize the activities of the procurator in connection to theses two classes of persons.

What is a procurator? A procurator was a free man, often a freed slave who acted as agent for the interest of a noble family, while an instate was normally a slave who sold his master’s goods ‘’ (F.H.Lawson, The Roman Law Reader,(1969)p.103)

The pressure of mercantile needs in the middle ages, the influence of the cannon law contributed a considerable importance in the contractual agency development. And the remarkable feature resulting from the principal and agent liability in the early Roman law was that,’’ The freeman who acted as an agent, usually known as a procurator, became invariably liable to the third party and the agent with no connection between the principal and the third party.

In the earliest times, as stated above, owing to the personal nature of the roman law, a master or parent acquired the benefit of contracts entered into by slaves or sons, whether they contract in their own name or in his own name. But, even though he received the benefits derived from such contract, he was not held liable to the contacting third party. Nevertheless, at a certain point, in the historical development of the Roman’s the agency concept, holding masters liable for acts of their slaves or agents was observed.

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)

Paul Mc 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 3^rd 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.