Agency is an indispensable part of the existing social order. It fulfils the most diverse functions in public and private law of today; in particular it assists in organizing the division of labor in national and international economy by making possible for a principal to extend his individual sphere of activity. Agency extends the individual sphere of activity by allowing him to perform multiple business operations simultaneously in various locations.
Agency is a fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act in his behalf subjected to his control and consent.
The term fiduciary has a paramount significance in agency law and it has different meaning when it is used as a noun and as an adjective. When used as a noun it refers to a person who has a duty to act primarily for another’s benefit. When the term is used as an adjective, as in fiduciary relationship, it means that the relationship is one involving trust and confidence.
An agent is appointed when an individual is unable to act on account of his manifold occupation, absence, illness, advance age; representative may also be designated in order to take advantage of his special capacity, knowledge and experience.
In agency relationships, the party for whom another acts and from whom the other party derives authority to act is a “principal”. To put it in another way, a principal is a person who authorizes another person (the agent) to act on his behalf.
Ato Desalegn enters into agreement with Ato Negash so that the latter sells Ato Desalgn’s, 21 inch color TV set for 1200 birr. In this case an agency relationship exists between Ato Desalegn and Ato Negash. The authority to sell the TV set of Ato Desalegn is given to Ato Negash by Ato Desalegn; therefore, Ato Desalegn, in favor of whom Ato Negash agrees to act, is the principal.
The person who acts for and represents the principal, and acquires his or her authority is an agent. Pursuant to the grant of authority by the principal, the agent is the representative of the principal and acts in the place and instead of the principal.
In the above illustration Ato Negash ,for whom the authority to sale the TV set is given by Ato Desalegn, is an agent.
The Ethiopian Civil Code provides the definition for the term “Agency” under its article 2199.
Article 2199: Definition
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.
The above definition of agency shows that agency is a contract. The article defines Agency as a contract to show that Agency is a consensual relationship. Meaning the agency relationship is made based upon the will and agreement of the principal and the agent. A person may not be forced to appoint another person as an agent without his /her interest and in no circumstance shall a person be forced to act for and on behalf of another. According to the above article an agency relationship exists when one party, called the principal, authorized another person to act for him and when the other person agrees to represent or act for the principal.
In an agency relationship, whatever an agent does in the lawful prosecution of the transaction the principal entrusted to him is considered as an act of the principal. This is based on the general principle of agency that qua facit peralium Facit per se it means one who does some thing through another does it oneself.