Week 5 The Law of Agency in Travel and Tourism

Hospitality I Tourism I Leisure I Events

The Law of Agency
• The Agency Relationship
• Creation & Classification of Agency
• Authority of an Agent
• Duties & Rights in Agency
• Termination of Agency Relationship

Introduction to Law of Agency
• In daily business, people are often represented by
others for commercial viability, efficiency and
expediency.
• They are often represented at local, national and
international commercial and business transactions.
• Agency is the relationship arising when one person
is appointed to act as the representative of another.
A person that ‘represents’ someone else is acting for or on
behalf of that person (Agent) and based on circumstances
can give rise to different things depending on authority
vested to the person representing the other party (Principal)
in commercial dealings with others (Third Parties)

• It is necessary to determine what the representative
is authorized to do on behalf of the other party.
• The term ‘agent’ describes different commercial
relationships, simple and complex which may or
may not give rise to a definite agency relationship.
• An agent is a person who is authorized, expressly or
impliedly to act for and on behalf of the principal
and a third party.
• Consequently, the principal is then bound by the
acts of his agent as a direct result of the authority
given to the agent expressly, verbally or impliedly.
PAUL OLOLA paulolola@hotmail.com +(254) 0723 403 147
Basis of Agency

The Agency Relationship
• Agency is the fiduciary (legal) relationship based on
trust, honesty and good faith that arises between a
principal and an agent.
• Law of Agency (LOA) involves the relationship
between the principal and the agent.
• LOA governs situations where the principal will be
legally bound by acts of the authorized agent.
LOA determines the exact ‘authority’ of the representative in
commercial dealings giving rise to an agency relationship,
where the agent creates or effects legal relations between
another person, the principal and a third party

Agency Relationship in Travel & Tourism
Customer
Independent Retailer
• Principal pays commission to retailers
Tour Operator/ Wholesaler Independent Retailer
• Principal negotiates bulk sales or allocation of production to another principal
Online Intermediary Website/ Portal
• Principal pays commission to online intermediaries
Two-Way
Three-Way
Tour Operator
or Wholesaler
Principal
Independent
Retailer
Specialty
Channel
• Principal pays commission to wholesaler, who pays commission to retailer who
in turn pays commission to a specialty channel for sale of products

Agency by Express & Implied Appointment
A state of agency relationship can be created by four
different ways that presume authority has been granted:
• Agency may be made by express or implied
appointment between the principal and the agent.
• The actual authority conferred to the agent by the
principal may be either express authority or implied
authority.
• Agency created by express agreement may be orally
or in writing, or partly orally and partly in writing.
• Agency created by implied agreement may arise
from circumstance of the case and the situation.
Creation of Agency

• Agency by estoppel arises where the principal by
words or conduct has created the appearance that
the agent is in fact his agent although in reality
there is no agency relationship.
Agency by Estoppel
Creation of Agency…Ctd

• When a principal by conduct or statements has
induced others to believe that a certain person
is his agent, he is estopped from subsequently
denying it.
• Where one is under legal duty to disclose some
fact to another and he does not do so, the other
is entitled to assume non-existence of the fact.
In the context of LOA, a person under legal duty to inform
a third party that the person purporting to act for him as
his agent is in fact not his agent, but fails to do so, may be
estopped from saying the apparent agent is not his agent

• Ratification denotes the agency arising if a person
adopts a transaction which someone had concluded
for him as his agent without his express authority.
• The person who adopts the transaction becomes a
principal as if he had initially authorized it.
Agency by Ratification
Agency by ratification can only arise if:
• The alleged principal ratifies the contract within
reasonable time after the agent had made it for him.
• The alleged principal must have had legal capacity to
contract at the time the contract was made.

Agency by ratification can only arise if…..Ctd
• The principal was in existence at the time the
contract was formed.
• The contract to be ratified is lawful.
• The person whose act is to be ratified professed
to be an agent of the person seeking to adopt it.
• The principal must have been made aware of all
the material facts of the relevant transaction
before he decided to adopt the contract.
• The ratification must be of the whole contract
and not merely parts of it.

Effects of Agency by Ratification
• The principal may sue or be sued by the third
party.
• The agent seizes to have liability to the third party.
• The agent is no longer liable for exceeding his
authority.
• The principal is liable to pay the agent reasonable
remuneration.

• Agency may also be made out of necessity.
• Commercial agency of necessity arises in situations
of emergency that require immediate action.
• The contemplated action averts financial loss.
• No necessity arises if there is no emergency.
Agency by Necessity

• A Special or limited agent; an agent authorized by a
principal to make a particular type of contract, or
represent the principal in particular transaction only.
• A general agent; an agent authorized to make
contracts of a certain class which are normal for such
agents, or to do some act for a principal which forms
part of the ordinary course of business for the agent.
• A universal agent; an agent who has power to do
practically anything the principal can do and usually
appointed through power of attorned (by law).
The main reason for classifying the different types of agency
is to determine the actual extent of an agent’s authority
Classification of Agency

Once agency relationship has been made, the agent’s
actions are made valid through the following authority:
• Express authority, when authority is given by
express words or in writing.
• Implied authority, when authority is inferred from
the conduct of the parties and circumstance of
the case.
• Apparent authority, which is the authority of an
agent as it appears to others and also referred to
as ostensible authority created by representation.
Authority of an Agent

Authority of an Agent…Ctd

• To pay the agent agreed commission when due
according to the terms in the contract of agency.
• To indemnify the agent by reimbursing any out
of the pocket liabilities incurred in bona fide
execution of his mandate under the contract of
agency or,
• Duty to reimburse the agent for expenses that
have been agreed or are reasonable.
Duties of a Principal to the Agent

• To exercise due diligence, reasonable care and skill
in performance of his duties by applying any
special skills which he professes to have.
• Duty to avoid conflict of interest; he must not buy
the principal’s services himself or sell his services
to the principal.
• Performance such that an agent that accepts to
act as one for a reward has contractual obligation
to execute his assignment.
• Obedience such that the agent must act strictly in
accordance to the principal’s lawful instructions.
Duties of an Agent to the Principal

• Duty not to make any secret profits; all benefits
from the agency relationship must be handed
over to the principal unless agreed to retain some.
• Duty not to delegate; the agent cannot further
delegate work delegated to him by his principal
except in the following scenarios:
Duties of an Agent to the Principal…Ctd
✓ Where the principal has expressly permitted it.
✓ Where it is necessary to complete performance properly.
✓ Where the custom of trade permits it.
• Duty of good faith; the agent must act with truth,
integrity and fidelity to his principal’s interest.

• An undisclosed principal may sue and be sued on
a contract made by an agent on his behalf acting
within the scope of his actual authority.
• If the third party fails to perform the contract, he
may be sued by either the principal or the agent.
• If the contract is breached by the principal, the
third party may sue the principal or the agent.
Rights of Undisclosed Principal in Agency
An undisclosed principal is one whose existence in unknown
to the third party because the agent did not disclose that he
was contracting as an agent, his rights are as follows:

• Where an agent expressly assumes personal
liability to the third party when contracting.
• If the agent executes a deed in his own name,
the principal does not exist or has no capacity.
• If an agent contracts as an agent but is in fact a
principal.
• If the customs of trade makes the agent liable.
• If an agent lacks authority or exceeds his
authority he will be liable to the third party for
breach of warranty of authority.
Circumstances of Agent Personal
Liability to Third Parties

• Bankruptcy or insolvency of the principal.
• Performance or completion of agency business.
• Agreement between the parties.
• Revocation of agent’s authority by the principal.
• By operation of the law; frustration, illegality,
expiry of time, death, disability, insanity etc.
Termination of the Agency Relationship
An agency relationship will be terminated under the
following circumstances:

a) An agent who can only make a particular type
of contract or carry out a particular transaction
on behalf of the principal.
b) An agent who can do almost anything on
behalf of the principal which the principal can
do for themselves.
c) An agent who can make contracts of a class
that are normal for the type of agency.
d) None of the above
Classroom Discussions
Which of the following best describes a ‘general’ agent?

a) The principal creates the appearance of an
agency by words or conduct that in reality
does not exist.
b) Authority is actually conferred by the principal
either verbally or in writing.
c) Authority is inferred from the conduct of the
parties.
d) The Agent claims to be principal’s legal
representative.
Classroom Discussion 2
Which of the following best describes
express actual authority?

a) A is entrusted with B’s property and finds it
necessary to do something with it to preserve it.
b) B retrospectively affirms the authority of A.
c) A and B became partners in a partnership.
d) B appoints A under general power of attorney
to carry out a particular transaction.
Classroom Discussion 3
Which of the following is an example of an
agent appointed by express appointment?

Law of Torts [Next]
• Functions of Torts Law
• Elements of Torts Law
• Classification of Torts
• Rights protected by Torts
• Remedies for Torts

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Thematic Areas
• Tour Guiding and Interpretation
• Tourism and Travel Law
• Travel and Tour Operations
• Wildlife Tourism
• Sustainable Tourism
• Marketing for Travel and Tourism
• Social Media Marketing
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Week 5 The Law of Agency in Travel and Tourism

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Week 5 The Law of Agency in Travel and Tourism