Law of Agency Contract

Law of Agency Contract

  1. Introduction
    The employment of agents in commercial transactions has assumed great importance in modern day business practice. This has been dictated by the complexities of modern specialized mercantile transactions and practices which dominate the commercial arenas of Nigeria, as in other developing countries of the world.

Table of content

  1. Introduction
  2. Definition of Agency
  3. Legal implications of the definition
  4. Characteristics of agency Relationship
  5. An Agent Distinguished from a Servant
  6. Agent Distinguished from a Trustee
  7. Classifications of agent

As a result of the advancement in the field of technology and communications, it is now possible for people in distant places like the United States, China, Japan, Russia, etc. to transact business with Nigerians. Distance at times present some difficulties, and therefore could be disadvantageous to the astute businessman.
Consequently, he (the principal) finds it necessary to appoint an agent in such distant places where he has business interests. In like manner, Nigerians who are in business with people from other countries usually appoint agents in such foreign countries where they have their business.
Another considerations for the appointment of agents by owners of business (principals) is that all men are not equally talented in doing business. People differ in terms of their technical knowledge as well as in their skill and experience. It has, therefore, become necessary and in fact indispensable for one who is called a Principal, to employ the services of another called the Agent, with the sole purpose of the latter representing the former in his (principal’s) business transactions with third parties.

2. Definition of Agency

There has never been any definition of agency which is comprehensive enough for all purposes and free from controversy. Adesanya and Oloyede defined agency as:
”A consensual relationship existing between two parties by which one, the agent, is expressly or impliedly authorized to act on behalf of another, the principal, in any dealings with third parties”.
Professor Achike defines agency as:
The consensual relationship that exists between two persons when one, called the agent, is considered in law to represent the other, called the principal, in such a way as to be able to effect the principal’s legal position in respect of strangers to the relationship by the making of contracts on the disposition of property.
The main points of interest in the above definitions of agency are as follows:

  1. The agent is an instrumentality or conduit pipe through which the principal acts and he (the agent) immediately drops out of the arrangement after accomplishing the transaction between the principal and a third party.
  2. It is obvious that agency contemplates the execution of a lawful transaction. Therefore, where an agent does a criminal or tortuous act, he cannot raise the defence that he was acting under the instructions of his principal, as the agent is not bound to execute such unlawful instructions of his principal. If an agent carries out a felonious act, he becomes liable as a party to the offence or as a joint-tortfeasor with the principal.
    The act to be done by an agent is of varying degree and nature. Thus, it may be the making of a contract, the institution of a legal action, or the conveyance of a parcel of land.

3. Legal implications of the definition of agency

The legal implications of the above definitions of agency are two folds:

  1. Any contract concluded by the agent as agent of the principal binds the principal and creates reciprocal rights and liabilities between the principal and the third party.
  2. Such contract will create privity of contract between the principal and the third party. In order words, the contract thus entered into by the agent on behalf of his principal will have the same consequences as if the principal has personal has personally entered into the contract. This is expressed by the Latin maxim, Qut facit per alium facit per se. The agent will therefore not incur any liability on the contract (see Khonam v John (1939) 15 N.L.R. 12). To this extent, therefore, agency relationship creates an exception to the basic rule of contract that a person cannot be beneficiary or adversely affected by a contract to which he is not a party.

4. Characteristics of Agency Relationship in Law of Agency Contract

Agency relationship possesses six essential characteristics, namely:

  1. Agency creates two types of relationship: a bi-partite relationship between the principal and the agent on one hand and a tri-partite relationship between the principal, the agent and the third party. These two aspects of the agency relationship are sometimes differentiated respectively as internal and external.
  2. The law of agency applies only in situations when the agent’s representation or action on behalf of the principal affects the principal’s legal position, that is to say, his rights against, and liabilities towards, other people. Thus, the law of agency has no relevance to social or other non-legal obligations.
  3. Agency relationship arises only in circumstances where it is considered in law to arise. It is not what the parties choose to call relationship, or intend it to be, that matters, but the effect that law attaches to it. Parties cannot make their relationship one of agency by calling it one. The test, therefore, is one of substance, not one of form. (see the case of Sagoe v John Walkden Co. (1931) 1 W.A.C.A. 157; see also Customs and Excise Commissioners v Pools Finance (1937)Ltd. (1952) 1 All E.R. 774)
  4. Agency relationship is not always a consensual relationship, that is to say, a relationship arising from agreement or consent. Admittedly, most agency relationships arise from express or implied agreement or consent on the part of the principal and the agent, but the element of agreement or consent on the part of the principal and the agent, but the element of agreement or consent is not always present or indeed necessary. For example, in the case of agency of necessity, there is no such agreement or consent and in the case of agency by estoppel, the relationship arises against the real wishes of one, if not both, of the parties.
  5. In an agency relationship, the agent represents the principal. This means that, provided he acts lawfully and within his authority, the actions of the agent in relation to third parties are ascribed to the principal. The agent is thus, in this case, the alter ego of the principal or, as already stated, at least a conduit pipe, connecting the principal and the third party. One consequence of this is that, as already stated, when the agent enters into a contract on behalf of the principal, a direct contractual relationship (or privity of contract) exists between the principal and the other party to the contract, (see New Zealand Shipping Co. Ltd. V A.M. Satterthwaite and Co.Ltd. (1975) A.C. 754; (1973) 1 ALL E.R. 1015.
  6. Agency creates fiduciary relationship, that is to say, a relationship of trust and confidence.

5. An Agent Distinguished from a Servant

Although there is close similarity between an agent and a servant, it is important to point out their distinguishing features. A servant is a person employed to render services under the instructions or directions of his master. Therefore, the master is not liable for the contract of his servant. On the other hand, an agent is one generally employed or appointed to arrange contracts between the principal and third parties. An agent may act in a dual capacity, i.e., he may act as an agent as well as a servant. Thus, Chris may be engaged to advertise and sell programme for Okutalukwu Movies Ltd acting on that capacity as an agent, while he may also be employed by them as a servant to scrutinize the tickets at the gate.

6. Agent Distinguished from a Trustee

Although in law the office of an agent is different from that of a trustee, in that each performs a function distinctly peculiar to his office, those two offices are in fact similar by reason of the fact that some varying degree of confidentiality is imposed on the agent and a trustee.

7. Classification of Agents

The importance of classifying agents lies in the fact that it helps to determine the extent to which a principal may be made liable for the unauthorized acts of his agent.
There are different ways of classifying agents, namely:-

  1. Classification According to the Extent of the Principal’s Right of Control and the Nature of the Acts to be Performed by the Agents.

In this connection an agent may be either a general agent or a special agent
A general agent is one who is authorized, or has authority, arising out of and in the ordinary course of his business, trade or profession, to act on behalf of the principal generally in transactions of a particular kind. He thus has broad authority to represent his principal in a particular matter. In other words, he is given wide authority to represent his principal in a particular matter. In other words, he is given wide authority to act for the principal in all matters pertaining to the course of his ordinary business as an agent. Examples are, a legal practitioner in respect off his client, a company director in respect of his company, the manager of a business or a sales manager. Again, a transaction between a third party and a general agent whose powers had been limited by the principal may be binding, unless it can be established that the third party was aware of the limitation placed on the agent’s authority. However, if the authority of a general agent is limitless, he thus becomes a universal agent.
A special (or particular) agent, on the other hand, is one engaged for specific or particular or limited authority or purpose, i.e. one whose authority is limited to doing some particular transaction, not being in the ordinary course of his business, trade or profession, e.g. a polling agent, (see Keffi v Isa (1965) N.M.L.R. 17). In other words, he is one with authority to do a specific act or to represent his principal in a particular transaction which ordinarily is not within his powers to do. In this connection, it is clear that any act by such an agent outside the scope of his authority does not bind the principal, for it is not open to a third party to assume that an agent is a general agent. An agent with authority to purchase a truck or to sell a specific property is a special agent. The same person may, however, be both a general agent and a special agent concurrently. Thus, the managing director of a store of which X is a manager may authorize X to purchase a car for him. X is a general agent as regards the managing of the business, but a special agent as regards the procuring of the car.

  1. Classification According to the Nature of Liability Imposed on the Agent

Under this classification, three groups will be mentioned, namely:
a. Agents that Are Not Personally Liable for their Contracts: These are agents who are never personally liable to their principals for contracts executed by them on behalf of such principals. They consist of the usual type of agents.
b. A Del Credere Agent: A del credere agent is one who in consideration of extra commission or remuneration called a del credere commission, guarantees to his principal that third persons with whom he enters into contracts on behalf of the principal shall duly pay any sums becoming due under these contracts, i.e. he promises to indemnify his principal against any loss which may arise as a result of the buyer’s inability or refusal to pay the price of the goods supplied to him. In other words, such an agent undertakes to be liable to his principal for the price of goods sold by him to a third party in the event of the third party making a default in payment. Although this is primarily a contract of guarantee, one may regard it as an exception to the rule that such a contract must have a written note or memorandum as basis for enforceability. Such an agent was referred to by Pearce, J. as ‘merely a guarantor of the buyer’s solvency’ (see Rusholme v Read (1955) 1 W.L.R. 146, at p. 151; Omoregie v Portland Cement (1962) 1 ALL N.L.R. 156.
Another view is that a del credere agency is a contract of indemnity, in which case the agent merely promises to indemnify the principal should the third party fail to pay for the goods sold or in the event of the third party becoming insolvent. To that extent, the del credere agency does not require a written note or memorandum. However, the better view is that del credere agency is an indemnity contract, and is treated as such, although peripherally it has the appearance of a contract of guarantee.
A del credere agent is, therefore, a surety of the buyer and his liability only arises contingently on the buyer’s failure to pay up. But this liability will only arise if the third party refuses or is unable to pay for the price of the goods delivered to him, but not if he refuses to take delivery of the goods (see Gabriel and Sons v Churchil and son (1914) 3 K.B. 1271). Thus, in Omoregie v Portland Cement, supra, the Supreme Court held, inter alia, that where there are no words in a contract of agency which suggest that a higher reward is being paid to the agent in consideration of his assuming liability for any amounts due from customers on credit sales, and there is nothing in the course of conduct between the parties from which such arrangement can be informed, the agent is not a del credere agent, and is not liable to his principal for such amounts due to customers.
The agent may, of course sue the third party. It may be added that a del credere agency may be implied on the grounds of the custom of a trade.

  1. Confirming House: this is an arrangement whereby an exporter within the country on receipt of an order from a foreign customer obtains confirmations from a third party either within the country or the customer’s country. The, third person constitutes himself a confirming agent to the extent that if the foreign customer defaults in the performance of the contract, he will indemnify the exporter. In other words, in the export trade, when the supplier receives an order from a customer abroad, he may seek confirmation of that order by a person of firm in the supplier’s country. The confirming house for an agreed commission adds confirmation or assurance to the bargain which had been made by the buyer, and is reasonably liable to the supplier if the abroad fails to perform the contract. If the confirmation pays, he can claim indemnity from the buyer. But if the confirmer fails to pay, the seller can still claim his purchase price against the buyer. The operation of this type of agency is aptly illustrated by the case of Sobell Industries V. Cory Bros. Co (1955) 2 Lloyds Rep. 82. Here Turkish buyers placed a large order for radio sets with the plaintiffs and the defendants confirmed the order.
    After receipt of part of the consignment, the buyers refused to take delivery of the rest.
    It was held that, the defendants as customers were liable for damages for non-acceptance.
    c. Classification in Terms of the Particular Functions Performed by agents
    Under the above classification, we shall discuss the following:
  2. Mercantile Agent. Section 1 of the Factors Act, 1889, defines a mercantile agent as:
    ‘A person who, having in the customary course of his business as such agent, authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods’.
    This definition covers factors, brokers, auctioneers and dealers on commission, but does not cover servants or clerks. In order words, a mercantile agent is a person to whom is entrusted the possession of goods with an implied authority to sell in his own name. He is sometimes referred to as a factor.
    Where, however, a mercantile agent sells goods without authority, the buyer axquires a good title to the goods, for Section 2(1) of the Factors Act, 1889, contains the powers of a mercantile agent. The sub-section states as follows:
    ‘Where a mercantile agent is, with the consent of the owner, in possession of goods or of the documents of the title to goods, any sale, pledge or other disposition of the goods, made by him when acting in the ordinary course of business of a mercantile agent, shall, subject to the provisions of this Act, be as valid as if he were expressly authorized by the owner of the goods to make the same; provided that the person taking under the disposition acts in good faith, and has not at the time of his disposition notice that the person making the disposition has not authority to make the same’.
  3. Brokers: A broker is a mercantile agent who is employed to negotiate contracts on behalf of another, for the sale or purchase of property or goods for a commission called brokerage. Such an agent is usually a member of an institution, for example, the Nigerian Stock Exchange; and he buys and sells in accordance with the rules of such institution. He may be a shipbroker, i.e. one who negotiates the chartering of a ship, or an insurance broker, i.e. one who negotiates a policy of insurance. He, unlike a factor, has no possession of the goods. Consequently, he has no lien on them, and as such can only sue on his principal’s name. In other words, a broker does not take his principal’s goods in his possession; he cannot sue third parties in his own name unless permitted by a custom of the particular trade. A broker can be an agent for both the buyer and the seller. It follows that, although brokers and factors are mercantile agents, the main distinction between these two classes of agents is that a broker is an agent who is authorized by his principal to negotiate and conclude a contract for the sale of goods but without ever having been entrusted with possession of them, whereas a factor is entrusted with the possession of goods for the purpose of sale.
  4. Banker: In a limited sense, a banker is an agent of the customer of the bank with regard to the banker’s duty to pay money to the amounts specified by a customer of the bank in favor of endorsees.
  5. Estate Agents: These are persons engaged by an estate owner or land speculators for the purpose of buying or selling houses or pieces of land in consideration of payment of commission called estate commission.
    Advertising and Patent Agents: Advertising agents and patent agents are also special agents employed in relation to advertising and patents.

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