08 November 2013 Written by  Awet Hailezgi and Addisu Damtie

Formation and Requirements of Agency

Pursuant to Art. 2179 of the Ethiopian civil code, we find two sources of representation:  the agreement of the parties or by law. In most cases, the authority to represent a person on a transaction with a third person emanates from the agreement of the parties and seldom, when the social and economic realities so demand, such authority is conferred on a person by operation of the law. When the authority to act on behalf of another emanates from the agreement of the parties, the outcome will be that there will be two separate contracts. These are the internal contract between the principal and the agent and main contract concluded by the agent in the name of the principal with a third party. Accordingly, the internal relationship between the representative and the represented is legal as opposed to contractual. Since such kind of relationship emanates from the law [by the operation of the law], it does not require a special consideration. Hence, our discussion under this topic will focus on agency contract or mandate.  In order to form a contract, consideration is one among the essential elements in the common law legal system. However, this is not an essential element of contract under the Ethiopian law of agency. Agency is one of the special forms of a contact. Therefore, in order to form an agency contract, consideration may not be essential under the Ethiopian law of agency. In addition to this, the elements of a valid contract provided for under art. 1678 of the civil code are also applicable for the formation of contract of a agency. These elements are:

1.   Sufficiently defined, possible and lawful object

2.   Consent and capacity

3.   Form should be fulfilled.

Now let us see each of the requirements for the formation of an agency contract.

1.   Object   

contract is of no effect unless its object is sufficiently defined, possible and lawful as provided under art. 1715 and 1716 of the civil code. When we consider the agency contract, the most difficult area is related to sufficiently defined object. This particularly happens especially with the extent of the power given to an agent. Because it could be very difficult to fix such a power, for the agent usually deals with third parties in the absence of the principal, it is difficult for him to rely on the principal in determining whether the interests 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. Hence it may not be possible to enumerate 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 he thinks promotes the interest of the former, there is a risk of abusing the power on the part of the agent.

The law in the above case tries to find a solution somewhere in between the two extremes. Accordingly, under the French law, power given in general terms is construed to include any acts of administration. According to this law, the performance of transactions other than acts of administration calls for an express power. Therefore, an agent cannot alienate or mortgage property where there is no express authority.

In a similar fashion, the Ethiopian civil code adopted the same solution as that of the French for the above-mentioned problem. As stated under art. 2203 of the civil code, authority given in general terms encapsulates only acts of management. In here one can raise the question of what acts of managements are. The concept of acts of management is provided for under art. 2204 of the civil code. Accordingly, acts of management are: ‘’Acts done for the preservation or maintenance of property, collection of debts, discharge of depts., sell of perishable things and goods intended to be sold interalia’’. In addition to this, art. 2205 of the civil code explicitly states that express authority is demanded in order to perform acts other than acts of management. When we look at sub art (2) of art 2205, it specially prohibits the agent to alienate or mortgage real state property without a special authority. Hence, an agent who is granted a general power of attorney cannot sell a property to the principal. In order to do so, he should be given a special authorization. However, if the agent sells among the properties of the principal where there is no authority to such effect, the principal will not be bound to the third party. Therefore, the agent in this case will be liable towards the third party, unless the principal ratifies the acts of the agent.

2. Capacity 

‘’He who gives a mandate exercises the will to do the act which he charges his mandatary to do in his place. He must therefore have the capacity necessary to do such an act, so that there is no particular capacity to a give a mandate; this capacity depends on the nature of the acts to be done’’

A principal can only delegate transactions, which he is capable to perform himself. He cannot extend his legal capacity by acting via an agent. Therefore a minor can appoint an agent only for the specific acts, which he is capable under the law to perform personally. 

Rights and duties are created directly on the principal by the contract, which the agent concludes in the name of the principal with the third party. Hence, regarding this contract, the capacity of the principal is an essential element of the contract because we have seen that this element is required to form a valid contract. And since agency is a special form of a contract, this element will be applicable there too.

The capacity of an agent is a matter of indifference with respect to the main contract. Hence, a principal can appoint an incapable person as his agent. If the former is confident enough in the honest and intellectual capacity of the incapable person. And this is owing to the fact that his agent is not responsible for the acts he performs in the name of the principal. The views with regard to the capacity of an agent and principal have been discussed under chapter one and no further discussion is required in here.

When we consider the Ethiopian civil code, a contract whose object is affected by incapacity can, upon the request of the incapable person, be invalidated [art1808 sub (1). However, if the incapable person does not apply for invalidation, the validity of the contract persists and the other party will be bound thereby. Therefore such a trend is equally applicable to the agency contract as it is a special contract.

   3. Consent

The vice of consent of contract are covered by arts 1696-1710 of the civil code. As in any other contracts, if the consent of either party [principal or agent] is vitiated by any of these vices the contract of agency becomes voidable that the party whose consent has been vitiated can invalidate the voidable contract pursuant to art. 1808 [1] of the civil code.

Concerning the main contract entered into by the agent with the third party in the name of the principal, Art. 2189[2] of the civil code gives the principal the right to avail himself to the defect in the consent of the agent. Similarly, sub art. [3] of art 2189 of the civil code entitles the third party to set up the fraud of the agent against the principal. Therefore the principal can demand the invalidation of the contract between the third party and himself pursuant to art. 1808 (1) of the civil code, on the basis of the vitiated consent of the gent during the making of the contract. Similarly, the third party, which has been defrauded by the agent can request the invalidation of the contract according to art. 1808[1] of the civil code.

Pursuant to art. 2189 of the civil code, more favor is given to the principal in protecting him than to the third party according to art 2189 [2]; the principal can avail himself of any defect in the consent of the agent.

Sub art [2] of art 2189 of the civil code doesn’t put a restriction as to the type of defect which the principal can employ as a basis of invalidating the contract. On the other hand, sub art [3] of art 2189 states that 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. That is, mistake, duress, false statement etc. cannot be invoked by the third party as defenses against the principal. Hence, one can conclude that art.2189 of the civil code renders more protection to the principal than to the third party.

4.   Form

As a rule no special form is required to conclude a contract. This is left to the choice of the parties to opt the form in which their contact is to be made. Sometimes however, this may not be true. Where a special form is required by law or when parties by themselves stipulate to observe a special form, the contract will not be affected unless it is made in conformity with this formal requirement. Hence it non-observance of the form that parties agreed or the law prescribes makes the contract a mere draft. Hence doesn’t bind parties, for it will not have any legal effect.

Let us consider the following provisions of the civil code.

Article 1720 Effects of provisions so to form

(1)Where a special form is prescribed by law and not observed, there shall be no contract but a mere draft of a contract.

(2)A contract shall be valid notwithstanding that fiscal provisions, such as provisos relating to stamp duty or registration fee, have not been complied with

(3)Unless otherwise provided, a contract shall be valid not-withstanding that prescribed measures of publication have been complied with.

As provided above, the contracting parties are free to make their contract in the form they assume is proper except the mandatory provisions prescribing a special form. The degree of this freedom of making a contract in the form that the contracting parties opt is not free of any limitation.

It is only upon the fulfillment of the following two conditions that the freedom mentioned above, works. These conditions are:

a.   There should not exist other forms that the law prescribed to be adhered to by the contacting parties.

b.   The parties should not stipulate any special form when they make their contract.

 Agency contract is a special form of a contract; hence the above provisions, which are applicable to the general contracts, can apply to the agency relationships.