Saturday, July 31, 2021

Form of Agency Contract

As a general rule, for the formation of an agency contract no special form is required unless the law provides that the contract of agency be made in a specified form (article 1719(2) and 2180 of the civil code), or the parties stipulate  that their contract be made in a special form (article 1719(3) of the civil code). 

 

There is no special requirement for the form of agency contract. It can be made in any form. But if the law for the contract that the agent concludes in the name of the principal prescribes a special form, the authority to make such a contract should be given in the same form. As provided under art 2180 of the civil code, for instance, art.1725 of the civil code provides that a contract of insurance shall be concluded in writing. Supposing principal (P) authorizes the agent to make a contract of insurance for him, the authority for this purpose must be given in writing. Apart from this, the contract of agency can be expressed, that is, written or oral, or it can be implied, that is, it can be inferred from the conduct of the parties as provided under art.2200 [1] of the civil code.  

 

As briefly discussed above these elements of the contract should be fully satisfied before a valid contract of agency can be formed. The absence of any of these elements renders the agency either voidable or void abinitio as the case may be, and it will be subjected to invalidation by the proper authority. 

 

In this case a question would arise what would be the fate of the contract entered into by the agent in the name of the principal with a third party when the agency contract between the principal and the agent is invalidated for the lack of any of the elements of the contract, which we have discussed above? This issue may be resolved in two different ways. First, it can be argued that since the agency contract is the basis of the main contract, the invalidation of the former should automatically cause the invalidation of the latter. This approach renders the position of the third party insecure in that it makes the validity of the contract that exists between the third party and the principal totally dependent on the existence of the contract between the principal and the agent to which the third party has no connection. This problem can be minimized to a large extent by the application of art.1816 of the civil code, which provides that acts done in the performance of a contract shall not be invalidated when the interest of the third party in good faith so requires. Therefore, although the agency contract is invalidated by the principal or the agent or by any other interested parties in accordance with art. 1808 of the civil code, the main contract, which the agent concluded in the name of the principal with the third party in performance of the agency contract, remains in force as between the principal and the third party where the interest of the third party so demands. This is however subjected to the qualification that such third party must not have been aware of the facts that caused the invalidation of the agency contract. Hence a third party, which contracted with the agent knowing the possible causes of the invalidation of the agency contract cannot invoke art. 1816 of the civil code.  

 

The second solution is based on the doctrine of separation. According to this doctrine, mandate [the relationship between the principal and the agent] and representation [the relation of the principal and the third party] are independent. Thus there may exist mandate without representation and vise versa. Therefore since the relationship between the principal and the agent on the one hand, and the relation of the principal with the third party on the other are separate phenomena, the invalidation of the agency contract should not by itself constitute a ground of invalidation for the main contract. 

 

According to the above arguments, it is better to adopt the second solution in Ethiopia. because, in the first place, the solution is in line with the doctrinal basis of the Ethiopian law of agency, which is the doctrine of separation, and secondly compared to art.1816 of the civil code, it affords more protection for third parties that the protection under this solution is not restricted by the requirement of good faith on the part of the third party. In other words, since this solution maintains the main contract effective, despite the invalidation of the agency contact, third parties who are aware of the fact that caused the invalidation of the agency are protected as well as those who are ignorant of such facts during the conclusion of the main contract. This seems logical because, as the third party has no connection with the contract of agency, the fact that he is aware of the possible causes of invalidation of such contract should not affect the validity of the contract between the third party and the principal.  

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