law of Agency

When a person employs another person to do any act for himself or to represent

him in dealing with third persons, it is called a 'Contract of Agency'. The person

who is so represented is called the 'principal' and the representative so employed is

called the 'agent (Sec. 182). The duty of the agent is to enter into legal relations on

behalf of the principal with third parties. But, by doing so he himself does not

become a party to the contract to the contract not does he incur any liability under

that contract. Principal shall be responsible for all the acts of his agent provided

they are not outside the scope of his authority.

AGENCY DEFINED

Agency is a legal relation founded upon the express or implied contract of the

parties or created by law, by virtue of which one party called the agent is employed

and authorized to represent and act for the other called the principal in business

dealings with third persons. Agency may also be defined as a bilateral contract

whereby one party, the principal, authorizes another, the agent, to execute business

on his behalf.

FORMS OF AGENCY RELATIONSHIPS

Agency is widely used in business and examples include auction houses,

stockbrokers, ship's captains, directors and employees of companies, solicitors,

estate agents, and football and theatrical agents. Agents are much used in

international business: a company in one country will often use an agent based in

another to seck business for it in that country.

AGENCY DISTINGUISHED FROM OTHER RELATIONSHIPS

It is important to distinguish the legal concept of agency from the way in which the

word 'agent' is used in common speech or even in business and to note its

distinction from certain other similar relationships.

a. Agency and distribution

In LAMB Y GORING BRICK CO (1932), the defendants were brick

manufacturers who employed the plaintifis as 'sole selling agents' of materials

produced by the defendants. The contract required the plaintifis to pay the

defendants for all goods received each month, whether they had been sold by the

plaintiffs or not. The Court of Appeal held that this was inconsistent with an

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agency relationship, in which the agent would not be expected to pay for goods for

which a purchaser had not been found. Thus. high street shops which are described

as, for example, a Grundig or Sony Agent is unlikely to be agents in the legal

sense. The shops are almost certainly buying goods from the manufacturer and

then selling them to customers. In legal terms, the shop is a distributor rather than

an agent.

b. Agency and Trust

There are similarities between agency and trust, in that both agents and trustees

have control over property to which other people are beneficially entitled. Both

also involve fiduciary duties. There are, however, significant differences. A trustee,

for example, has a legal interest in the trust property, whereas the agent does not

have such an interest in the property with which he deals on behalf of the principal.

Secondly, a beneficiary is not responsible for the acts of a fraudulent trustee: a

principal may, however, be liable for a fraudulent agent. Finally, the trustee usually

has positive duties to act, whereas the agent is more gencrally given powers, rather

than duties. But the two concepts are not mutually exclusive: a trustee may in some

circumstances act as an agent.

c. Agency and employment

Although it is common to talk of a principal employing an agent, an agent is not

necessarily an employee in the legal sensc. An agent does not have the rights (for

example, against 'unfair dismissal*) attaching to employment. An employee does

not, from that status, have authority to deal with an employer's property and make

contracts on his behalf in the way that an agent can in relation to his principal.

Some employees do, however, act as agents. Sales representatives, buyers and shop

assistants may all enter into contracts with third parties which bind their employer.

Similarly, a director of a company may be both an employee and an agent.

d. Agency and bailment

A bailee holds goods on behalf of the bailor, under instructions as to how they are

10 be dealt with. Thus far, there may be an overlap with agency. But the bailee has

no automatic power to affect the bailor's legal relationship with third parties. The

duty of the bailee may simply be to hold the goods and return them on request. A

bailee may become an agent if given appropriate power by the principal (for

example, to sell the goods at the best price obtainable). There is, however, no

necessary connection between the two statuses.

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CONTRACTUAL LIABILITY OF ACTORS IN AGENCY RELATIONS

There are three actors in the agency relationship — the principal, the agent and the

third party. The agency relationship is built on two contracts: (a) contract between

the principal and the agent, and (b) contract between the principal and the third

party: The three parties to an agency and their contractual liabilities are therefore,

presented as follows:

1. The principal - contractually bound to the third party for the purpose of the

commercial transaction and contractually bound to the agent for the purpose of

the agency agreement.

2. The agent - contractually bound to the principal and acts on behalf of the

principal for the purpose of the commercial transaction.

3. The third party - contractually bound to the principal for the purpose of the

commercial transaction.

CREATION OF AGENCY RELATIONSHIP

The primary purpose of agency is for the agent to bring the principal and a third

party into direct contractual relations. Thus, in agency relations, the negotiations

are between the agent and third parties but the contract is formed between the

principal and the third parties. Before a detailed discussion on the creation of

agency, the following must be understood.

1. Agency is a legal relation. The reference to legal relations is not intended to

distinguish it from illegal relations but to indicate that this is a relation in

law - a rclation that the law recognizes.

2. As a rule, the agency relationship is purely contractual, being based upon

the express or implied assent of the parties, either previously given or

subsequently conferred. Note however, that except agencies created by the

operation of the law, authority to act as an agent can exist only by the

express or implied assent of the principal.

3. No consideration is necessary to create agency. It comes under the category

of contracts which law has declared to be valid without consideration. The

fact that the principal has consented to be represented by the agent is a

sufficient detriment and consideration to support the promise of the agent to

act in that capacity. However, in case no consideration has passed to the

agent, he is not bound to do the agreed work, but once he begins, he must

complete it to the satisfaction of the principal.

4. The acts of the agent, within the scope of the instructions, bind the principal

as if the principal has done them himself. This is encapsulated in the Latin

maxim "qui facit per alium facit per se" and translated into English as "he

who acts through another, acts for himself. In simple words, the act of

agent is the act of the principal.

The agency relationship may be created by: (a) Agreement (express or

implied) or (b) Opcration of the law (necessity, ratification, estoppel or marriage

and co-habitation).

1. Creation of agency through agreement

The creation of agency relations through agreement may be express or implied.

a. Creation of Agency by express agreement

The creation of agency by express agreement occurs where the appointment of the

agent is made in writing or oral. In formal cases when written appointments are

made, it is done by a power of attorney which is normally stamped and registered.

This may happen in one of three ways: (I) An agent may be appointed by art oral

agrement between himself and his principal. It is not at all necessary that any

formal set of words be used. An agency formed by oral agreement is sufficient for

most purposes, but not for all (express oral agreement), (2) Agents are frequently

appointed by a formally written instrument, but the contract need not be formal; it

may consist of several letters that have passed between the parties (express written

agreements without seal), and (c) This is the most formal way of clothing an agent

with authority to act for his principal. But it is necessary only in cases where the

work to be done by the agent is required to be under seal; such, for instance, as

transferring real estate. As a deed must be under seal, so must the authority for

making the deed be under seal.

b. Creation of agency by implied agreement

When agency arises from the conduct of the parties or inferred from the

circumstances of the case, it is called implied agency. There is no evidence that the

agent has been appointed orally or in writing, but there are facts and circumstances

that can show that an agency has been created. In other words, agency is implied

from the special circumstances of the case. For example, since 2020, Daniel (the

principal) has paid Joseph (a third party) for goods sold on credit by Joseph to John

(the agent). Daniel (the principal) had never disputed Joseph's authority to receive

the goods given to him by John. Therefore, by conduct there is an implied

agreement that John was acting as Daniel's agent when buying goods on credit

from Joseph.

2. Creation of agency through operation of the law

In some other cases, the authority to act as an agent for certain purposes arises by

mere operation of the law, as an incident of some other relations in which the

partics stand. By operation of the law, an agency may be created through

ratification, necessity, estoppel, as well as marriage and co-habitation.

a. Creation of agency by ratification

Ratification means subsequent acceptance and adoption of an act by the principal

originally done by the agent without authority. Thus, where an agent does an act

for his principal without authority, or where he exceeds the given authority and the

principal elects to accept or ratify the act, agency is said to be created by

ratification. The rule is that every ratification relates back to the date when the

contract was originally made by the agent. In other words, the agency is taken to

have come into existence from the moment the agent first acted and not from the

date of principal's ratification. Such ratification can also be used to create agency

in relation to a person who is not an agent at all, provided that they have purported

to act for a principal. The concept is a powerful one, potentially altering the legal

consequences of actions taken by the third party, as well as affecting the

relationship between principal and agent. A good example of the use of ratification

is the leading case of BOLTON PARTNERS V LAMBERT (1889). In this case, T

made an offer to A the managing director of the company. A accepted it on the

company's behalf, although he had no authority to do so. T gave notice that he was

withdrawing his offer but, after this, the company P purported to ratify A's

unauthorised acceptance. The Court of Appeal held that P could, by ratification,

repair A's lack of authority and so render the contract binding, even though T had

purported to withdraw before the ratification. This decision was controversial at the

time and was strongly criticised by Fry LJ in a famous appendix to his book on

specific performance. Despite this, the decision has never been overruled and the

Court has confirmed that it remains good law.

For agency by ratification to arise, some essential conditions must be satisfied.

1. The act to be ratified must have been done without the ratifier's authority or

knowledge;

2. The person ratifying the act must have material knowledge of the facts of

the case;

3. The ratifier must be competent (majority and sound in mind) to contract;

4. The ratification must be of the whole of the transaction;

5. The ratification must take place within a reasonable time (6 months);

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6. The act to be ratified must not subject a third person to damages or

terminate his rights or interests;

7. A forgery cannot be ratified. A ratification will not have the effect of

making a forged signature a good and valid signature. This is because if

you permit a forged signature to be made valid by ratification, you will in

effect be condoning or accepting a criminal offence;

8. The agent's act that is ratified must have been done expressly on the

principal's behalf. The third party with whom the agent contracted must

have been aware that the agent was acting not for himself but on behalf of

the principal. If the agent had not carlier disclosed to the third-party that he

was acting for another, then that act cannot be later ratified by the principal.

b. Creation of agency by necessity

Under certain circumstances, a person may be compelled to act as an agent to the

other, c.g. master of the ship can borrow money at a port where the owner of the

ship has not agent, to carry out necessary repairs to the ship in order to complete

the voyage. In such a case of necessity, person acting as an agent need not

necessarily have the authority of the principal. However, the agent must act under

pressing conditions and for the benefit of the principal. In this wise, an agent of

necessity can be described as a person who, in circumstances of an emergency

acquires by operation of law, a presumed authority to act as an agent. The doctrine

of agency by necessity also extends to cases where agent exceeds his authority

provided (a) it was not reasonably possible to get the principal's instructions, (b)

the agent had taken all reasonable and necessary steps to protect the interests of the

principal and (c) he acted bona-fide. The object of the law in these circumstances is

to recognize the inability of the agent to communicate with the principal. In the

context, commercial necessity imposes on the agent the duty to act in good faith in

the interest of all the parties. The legal rules relating to agents of necessity seek to

achieve common sense in day-to-day human life. In the case of LAPRAIK V

BURROWS (1859) 15 English Reports, when the ship arrived in the harbor, the

captain found that the ship was unseaworthy. So, he decided to save further loss

and sold the ship. The owners of the ship were held liable for the act of the captain

who was regarded as their agent of necessity.

c. Creation of agency by estoppel

The term 'estoppel' is a legal term and means that a person who has let another

person believe that a certain state of affairs exists, is not later permitted to deny

that state of affairs if the other person has acted to his detriment in reliance of that

state of affairs. He is estopped or prevented from taking a different position.

Therefore, in the law of ageney if a person by words or by conduet represents to

the world that someone is his agent, he cannot later deny that agency if third

parties had dealt with that person as if he was the agent. The principal is precluded

from denying the truth of ageney which he himself has represented as a fict,

although it is not a lact. Thus, when a person has, by his conduct or statements,

induced others to believe that a certain person is his agent, he is estopped from

subsequently denying it. For example, Daniel says to Joseph in the presence of and

within the hearing of John that he is John's agent. John remains mum. Joseph

supplies goods of 10,000 Ghana cedis to Daniel, taking him as John's agent. John

is responsible for the payment of price of these goods. In LLOYDS BANK LTD V

CHARTERED BANK OF INDIA, AUSTRALIA AND CHINA (1929), one

Lawson, a senior employee of Lloyds Bank fraudulently drew cheques on the

bank's account and paid them into a personal account he maintained at the

Chartered Bank. When Lloyds Bank discovered the fraud, they claimed the value

of the cheques so drawn from the Chartered Bank. The Chartered Bank argued that

Lawson was an accredited agent of Lloyd's Bank and therefore Lloyd's Bank was

liable as the principal for the agent's acts - even if they were unauthorized. The

Court refused to accept this argument by saying that the Chartered Bank should

have questioned how a bank official was paying cheques of his employer into a

private account. No estoppel applied because the Chartered Bank could not prove

that their loss was caused by any representation of Lloyd's Bank. Further, it was

the Chartered Bank's own negligence that caused the loss. Therefore, Lloyd's Bank

was held not liable for the fraudulent act of Lawson.

d. Creation of agency by marriage and co-habitation

A wife or de facto spouse is presumed to have authority to pledge the husband's

credit for necessaries in keeping with their social status. Necessaries are items such

as food, clothing and medical attention for the spouse and the children in keeping

with the family's social standing. Where a husband and wife are living together in

a domestic establishment of their own, the wife shall have an implied authority to

pledge the credit of her husband for necessaries. The implied authority can be

challenged by the husband only in the following circumstances. (1) The husband

has expressly forbidden the wife from borrowing money or buying goods on credit

(DEBENHAM V: MELLON (1880). (2) The articles purchased did not constitute

necessities. (3) Husband had given sufficient funds to the wife for purchasing the

articles she needed to the knowledge of the seller (MISS GRAY LTD. V:

CATHCORT (1922). (4) The creditor had been expressly told not to give credit to

the wife (ETHERINGTION V. PARROT (1703). (b) Where the wife lives apart

4 5

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from husband without any of her fault, she shall have an implied authority to bind

the husband for necessarics, if he does not provide for her maintenance.

Necessaries for which a wife can pledge the husband's credit as his agent don v

include luxury items or items such as jewellery. In the case of PIANTA V

MACROW AND SONS PTY LTD (1925) 27 WALR 99 a trader who sold a wife a

diamond ring on credit cannot claim its cost from the husband if the wife does not

pay for it.

WHO IS AN AGENT

Agent is "a person employed to do any act for another or to represent

another in dealings with third person". Thus, agent is a person who acts in place of

another. The person for whom or on whose behalf he acts is called the principal.

For instance, Anil appoints Bharat, a broker, to sell his Maruti Car on his behalf.

Anil is the Principal and Bharat is his agent. The relationship between Anil and

Bharat is called Agency. The function of agent is to bring about contractual relation

between the principal and a third party. The agent is only a connecting link

between the principal and the third party and is rightly called as 'conduit pipe". The

agency relationship is based upon an agreement whereby the agent acts on behalf

of the principal in transaction with a third person.

TYPES/CLASSES OF AGENTS

There are four major forms of agent: (a) general agents, (b) special agents,

1. Special agents

A special agent is a person appointed to do some specific act or enter into

some particular contract as, for example, an agent employed to sell a house or an

agent employed to bid at an auction. Such an agent has a limited authority and as

soon as the act is performed, his authority comes to an end. He cannot bind his

principal in any matter other than that for which he is employed. A special agent,

therefore, has only a limited authority to do the specified act. If he does anything

beyond the specified act, he runs the risk of being personally liable since the

principal may not ratify the same. The authority of the special agent is well

defined. He is not to use his own discretion, but is to follow instructions, and his

actions do not bind the principal beyond the scope of his authority. For this reason,

a person who deals with a special agent should be certain that such agent acts

within the limits of his authority, othenvise the principal will not be held.

2. General agents

A general agent is one who is appointed to represent the principal in

reference to some transactions or some kind or series of transactions concerning a

particular business. These agents act for many functions on behalf of the principal

and not for al functions, as this could only be done by universal ngents. The

general agent has general authority over all his principal's business, or over all his

business of any particular kind. and his authority has no definite limit. For

instance, the managing director of a company normally has an implied authority to

bind his principal with a wide range of contracts necessary for carrying on the

business of the firm or which falls within the ordinary scope of the business.

Another example is the master or captain of ships. In the days before modern

communications, ships often encountered problems far from their home ports, and

captains had to make rapid decisions about the sale of perishable cargoes, or about

getting repairs done to the ship, without being able to get express instructions from

the principal.

3. Universal agents

A universal agent has unlimited authority to perform any act which the

principal would have performed including the execution of a deed on the

principal's behalf. This type of agent is appointed by a deed or power of attorney.

It may include signing bank cheques. Eg. Administrators of estate /executors of

state have power to sell property to safeguard others and sign so far as it is in the

interest of the beneficiaries. A universal agent can go ahead and appoint another

agent via proxy.

4. Mercantile agents

A mercantile agent is a person who, in the customary course of business,

has an agent's authority either to sell goods, or consign them for the purposes of

sale, or to buy goods, or to raise money on the sccurity of goods. Following this

definition, the mercantile or commercial agent may assume a variety of forms such

as the broker, factor, del credere agent, or auctioneer as discussed below.

(a) The broker

A broker is a mercantile agent engaged to buy and/or sell property or to

make bargains and contracts between the principal (engager) and a third party for a

commission called brokerage without actual possession of the property. A broker

has no possession of goods or property. He is merely a connecting link between the

principal and a third party. The usual method of dealing by a broker is to make

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entries of the terms of contract in a book. called the memorandum book and to sign

them. He then sends the particulars of the same to both parties. The document sent

to the seller is the sold note and the one sent to the buyer is the bought note.

(b) The factor

A factor is a mercantile agent who is entrusted with the possession of goods

with an authority to sel the same. He can even sel the goods on credit and in his

own name. He is also authorised to raise moncy on their security. A factor has a

general lien on goods in his possession. He, however, cannot barter the goods,

unless expressly authorised to do so. Also, he cannot delegate his authority.

A del credere agent is one who, in consideration of an extra remuneration,

called a del credere commission, guarantees the performance of the contract by the

third party. The primary use of this type of agency is in relation to transactions for

the sale of goods overscas, where the principal has some doubts that the third party

will pay. The del credere agent, in retur for increased commission, agrees to

indemnify the principal if the third-party defaults (MORRIS V CLEASBY (1816)).

A del credere agent thus, occupies the position of a guarantor, as well as of agent.

He is normally appointed in case of deals with foreign nationals, about whom the

principal may know nothing. This type of agency is still used on occasion, despite

the fact that such situations will nowadays often be dealt with by means of

documentary credits or credit guarantees.

(d) The auctioneer

An auctioneer is an agent appointed by a seller to sell his goods by auction

for a reward generally in the form of a commission. He is primarily the agent of the

seller but after the sale has taken place. he becomes the agent of the purchaser also.

He resembles factor in all respects except that he has only a particular lien on the

goods for his charges. He has authority to receive the price of the goods sold. He

can also sue for the price in his own name. The principal is liable to the third

parties for the acts of the auctioneer if the auctioneer acts within the scope of his

apparent authority even though he disobeys instructions privately given to him. In

any case, an auctioneer can sell only by public auction and not by a private

contract.

SUB-AGENT AND SUBSTITUTED AGENT

At common law; the general rule is that agent cannot appoint agent. The

governing rule is enshrined in a maxim ta delegate cannot further delegate'. Agent

being a delegate cannot transfer his duties to another. The principle underlying the

rule is that the principal engages agent ordinarily on personal consideration and

thus may not have the same confidence in the person appointed by the agent.

Hence, sub-agency is not generally recognised. However, deals with the

circumstances as to when and how far agent can delegate his duties. Agent may

appoint agent in the following circumstances:

1. where expressly permitted by the principal:

2. where the ordinary custom of the trade permits delegation;

3. the nature of agency is such that it cannot be accomplished without the

appointment of a sub-agent;

4. where the nature of the job assigned to the agent is purely clerical and does

not involve the exercise of discretion, c.g., if Anthony is appointed to type

certain papers, because of lack of time, he assigns the job to another equally

competent typist Bharat, the delegation is valid;

5. in an unforescen emergency.

Under the above-mentioned circumstances, if agent appoints another person

in the matter of the agency, that other person may assume the position of either n

sub-agent or a substituted agent.

A sub-agent is a person employed by and acting under the control of the

original agent in the business of agency. Since the sub-agent is appointed by the act

and under the control of the agent, there is no privity of contract between the sub-

agent and the principal. The sub-agent, therefore, cannot sue the principal for

remuneration and, similarly the principal cannot sue the sub-agent for any moncys

due from him. Each of them can proceed against his immediate contracting party,

viz. the agent except where the sub-agent is guilty of fraud. In that case, the

principal has a concurrent right to proceed against the agent and the sub-agent. A

sub-agent properly appointed, however, can represent the principal and bind him

for his acts as if he were agent originally appointed by the principal. But where

agent, without having the authority to do so, has appointed a sub-agent, the

principal is not represented by or responsible for the acts of such a sub-agent. The

sub-agent can only bind the agent by contracts entered into with third parties.

Where agent appoints or names another person for being appointed as agent

in his place, such person is called a substituted agent.

AGENT'S AUTHORITY

The law of agency has several distinctions concerning the types of authority

the agent may enjoy and the rights and liabilities of the principal, the agent, and the

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other contracting parties whenever an agent negotiates a contract on the principal's

bchalf. There are two major forms of authority for an agent.

1. Actual authority

Actual authority arises where the principal gives his prior consent to the

actions of the Agent. It is authority that arises where a principal grants, and an

agent accepts, authority for the agent to perform specific tasks on behalf of the

principal - in short there must be consensual agrement between the principal and

the agent'. Actual authority is therefore based on the agreement between the

principal and the Agent. Actual authority need not be contractual, al that is needed

is consent; does not necessarily need to be reduced into writing. The authority

usually and reasonably needed to complete an assigned task is called actual

authority. For example, if a truck company hires a truck driver to make interstate

deliveries of goods, the truck driver has actual authority to operate the truck and

may reasonably infer authority to purchase gasoline and make repairs to the

vehicle. However, the truck driver probably does not have actual authority to hire

an assistant truck driver to help drive the truck, since that is not usually or

reasonably inferred as being part of the truck driver's duties. Actual authority

typically is separated into two subcategories: express actual authority and implied

actual authority.

An agent has an express authority of his principal where the principal has

by words of mouth or a written instrument, for instance, a Power of Attorney,

permitted the agent to enter into a contract with a third party on behalf of the

principal. Where an agent is given such express authority, an act dore by him

which is within the limits of the authority so given will bind the principal and the

third party. The act done by the agent is as stipulated in the agency agreement. See

generally ASAKA V RAMINKUR.

Alternatively, an implied authority, otherwise known as apparent or

ostensible authority is one that is deduced from the actions or behaviours of the

parties without any express authorization. Here, the principal may be bound by

third parties because the agent appears to have authority, though as between

principal and agent there was in fact no authority and normal consequences of such

authority did not arise. See the case of UNION BANK OF NIG. PLC V OFAGBE

FANS LTD. Implied authority may also arise where an agent who has been

authorised to perform a particular task goes ahead to take some incidental actions

in relation to the task he was employed to perform. An illustration will suffice. A

has a petrol filling station and has employed B to sell petrol. In the course of this

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work, the pump develops a fault. B has invited C to repair the pump. A is bound to

pay C and this is so because B has A's implied authority to employ someone and in

this case C to repair the pump. The action of B contracting with C for the repairs is

incidental to the actual authority B has to sell the petrol.

The scope of the actual authority of the agent is therefore, to be ascertained

from the oral or written agreement between principal and agent, usage and customs

of the relevant trade, profession or business and the course of dealing between the

two parties.

2. Apparent or ostensible authority

The principal may be bound by acts done by the agent without his consent

or even in breach of the principal's express prohibition if his words or actions give

the impression that he had authorized the acts done by the Agent. If the third party

changes his or her position in reliance on the principal's representation regarding

the agent's authority, the principal may be estopped from denying that the said

agent had authority to act. Apparent authority is therefore the authority which a

person appears to have to act on another's authority. Atypical case is SPIRO V

LINTERN (1973). Facts: a wife contracted to sell her husband's house. The wife

had no actual authority to do this and, because she appeared to be the owner of the

house (not her husband's agent), she had no apparent authority. However, after the

contract was entered into the husband neither stated that his wife was acting

without his authority nor indicated that he was not willing for the sale to proceed.

On the contrary, the husband allowed the purchaser to incur various expenses with

regard to the property. In an action for specific performance of the contract, the

Court of Appeal held the husband was estopped from denying that his wife had

authority to sell the house on his behalf.

CAPACITY TO ACT AS AN AGENT

The capacity to act as an agent is not completely governed by the same

rules as capacity to act as a principal, since an agent does not enter into a contract

on his own behalf consequently, it is not necessary that he should have full

contractual capacity. All persons of the said mind, including infants and other

persons with limited or no capacity to contract on their own behalf are competent

to act or contract as agents. In other words, since agency depends on agreement

and not necessarily on contract, a person under contractual incapacity is not

disabled from serving in the capacity of an agent. The rationale of these rules is not

that the agent is a mere instrument and that it is the principal who bears the risk of

adequate representation. Thus, an infant may act as an agent in any type of contract

provided that he has sufficient understanding to consent to the agency and do the

required act. It is therefore, irrelevant to his capacity to act as an agent, that

because of his infancy he may not be liable to the 3d

party on the contract, where

adult agents would have been personally liable.

LIABILITY OF THE AGENT TO THE THIRD PARTY

If an agent contracts with a third party on behalf of a disclosed principal,

the general rule is that the agent is not a party to the contract and is not liable to the

third party. This result is consistent with the third party's expectations—-i.c., the

third party expected that he was entering into a contract with the principal and not

with the agent.

WHO IS A PRINCIPAL IN THE AGENCY RELATIONSHIP?

The person or entity on whose chalf and subject to whose control an

agent act. Therefore, the person who has delegated his authority will be the

principal. For instance, Gheto, a businessman, delegates Anniah to buy some goods

on his behalf. Herc, Gheto is the principal and Anniah is the agent, and the person

from whom the goods are bought is the Third Person.

CAPACITY TO ACT AS A PRINCIPAL

Only persons with full capacity to act contractually may appoint an agent to

act on his behalf. Thus, the capacity to contract or do any other act by means of an

agent is co- extensive with the capacity of the principal himself to make the

contract or do the act which the agent is authorized to make or do. To this general

rule, there are two exceptions:

• First, where the act is required by statute to be done by the person himself.

• Secondly, where the competence to do the act arises by virtue of the

holding of some public office.

A principal who does not have full contractual capacity cannot make a

contract by employing an agent who has full contractual capacity, that is those who

lack capacity to contract, like an infant or lunatic cannot as a general surmount his

contractual disability by employing agents to enter into a contract on their bchalf.

An infant cannot appoint an agent to purchase goods other than necessaries for him

since such contracts would be void. He can only appoint an agent in circumstances

in which he himself has the power to act. This restricts an infant's capacity to

appoint an agent only to kinds of valid contracts which he himself can make.

Also, mentally unsound persons have no capacity except doring their "lucid

intervals*, hence they cannot appoint an agent to contract on their behalf during the

time they are mentally incapacitated. Nevertheless, there may be cases where a

mentally incompetent person (or a drunkard) can be treated as a principal: for

instance (1) if the 3rd party contracts in ignorance of his condition and (2) without

taking advantage of the disability. The same rule also applies to drunkards. They

have limited or capacities to appoint an agent at the time of their disabilities. The

rule is stated clearly in the case of IMPERIAL LOAN COMPANY V STONE. The

rule is to the effect that where a party to a contract is of unsound mind, the contract

is nevertheless binding upon him unless he can prove that he was so insane as to

not know what he was doing and the fact was known to the other party who took

advantage of it. It is also important to note that that although the principal may

have capacity at the creation or inception of the agency, but subsequent loss of

• capacity through insanity for instance, may bring the agency relations to the end.

The case of YONGE V. TOYNBEE is illustrative of this point.

TYPES OF PRINCIPALS

There are three basic types of principals: disclosed principal, partially

disclosed principal, and undisclosed principal. The type of principal used depends

on the type of transaction and the goal of the transaction. The three types are

discussed in the following.

1. The disclosed principal

A principal is disclosed if, at the time of the agent's transaction, the third

party with whom the agent transacts has notice that the agent is acting for a

principal and has notice of the principal's identity. Even if the principal's identity

isn't known, but the third party has enough information available to reasonably

infer the identity of the principal, the principal is considered disclosed. In this

situation, the principal will be entirely liable to the third party, while the agent

remains not liable. For example, if a salesperson for Microsoft is selling software

equipment to a customer, and the customer is aware that the salesperson is acting

on behalf of Microsoft and that the software is manufactured and sold by

Microsoft, Microsoft is a disclosed principal. The courts seek to protect the

interests of third parties that look to the assets of a principal when dealing at arm's

length.

Commercial Law

2. The partially disclosed principal

A principal is partially disclosed if, at the time of the agent's transaction,

the third party has notice that the agent is or may be acting for a principal, but has

no notice of the principal's identity. A partially disclosed principal will occur when

the third party has notice that the agent is or may be acting for a principal, but has

no notice of the principal's identity. The agent here can remain liable to the third

party if the third party believes the agent is the actual party, but remains clucless as

to the principal's identity. For example, assuming Mr. Banks wants to buy a house

in Cape Coast, but does not want the neighbours to find out about his interest in the

property. Mr. Banks authorizes an agent to make inquiries of prospective sellers

without disclosing his identity to them. The agent would approach the sellers and

state that he is working for another person who does not wish to reveal his or her

identity at this time. In this case, the sellers would realize that they are dealing with

an agent, but Mr. Bank's identity would not be disclosed until a final contract f o r

the property was in placc.

3. The undisclosed principal

A principal is undisclosed if, at the time of the agent's transaction, the third

party has no notice that the agent is acting for a principal. In effect, the third pany

is dealing with the agent as though the agent is the real party in interest. The agent

is presumed to be acting on his or her own behalf, and will be liable as a party to

the contract. If, in fact the agent was authorized to act on behalf of the

undisclosed principal, then the principal will ultimately be subject to

indemnification. For example, if Mr. Banks authorizes an agent to make inquiries

regarding potential properties without disclosing that a principal is involved. In this

scenario, the agent would be giving the potential sellers the impression that he or

she was personally involved in the property, and the agent would then negotiate the

contract (according to Mr. Banks' terms) without letting the seller know that the

property is actually for Mr. Banks.

DUTIES OF AGENTS AND PRINCIPALS

1. Dutics of agents to principals at common law (rights of the principal)

These entail the legal obligations the Agent has towards the principal, the

breach of which makes him liable to the principal. By implication, the duties of an

agent are the rights of the principal in the agency relation. There are five major

duties of the agent: (a) Duty to Perform, (b) Duty of Care and Skill, (c) Duty of

Loyalty or Obedience, (d) Duty to Kcep Account, and (e) Duty to Notify the

Principal. These are discussed in the following section.

(a) Duty to perform

An agent is under the obligation to carry out the duty contained in the

agency agrecment. Where the ngent fails or neglects to execute his agreement in

accordance with its terms, he may be in breach of the agency and therefore, be

liable to the principal for the breach. If, however, he performs such duties

carelessly or in an imperfect manner and thereby causes loss to his principal, he

may in addition be liable for negligence. Such liability may take the form of an

action for damages for the loss suffered by the principal or an indemnity or

contribution from the agent in favour of the principal. See FRASER V FURMON

(PRODUCTION) LTD.

The agent is, however, not obliged to perform the terms of his agency if

these are illegal or null and void. If he fails to perform them at all, he would not be

liable for non-performance. If he performs improperly or negligently, he would

nonctheless not be liable to the principal. In COHEN V KITTLE, the plaintiff

employed the defendant to place bets on commission on his behalf. The defendant

failed to make certain bets pursuant to the plaintifi's order and the plaintiff sued

him for breach of contract as his agent. In his action, he claimed as damages, the

excess of gains over losses which should have been received by the defendant had

the bets in question been placed after deducting the amount of his commission. It

was held that, the bets would not have been recoverable at law. The plaintiff could

not therefore maintain an action.

If an agent is a gratuitous agent, he will not be liable for breach of duty to

perform. However, if he elects to perform such a duty, he would come under a duty

of care when performing and thereby may become liable for negligent

performance.

(b) Duty of care and skill

In executing the terms of the agency, the agent must exhibit utmost or

reasonable care, skill and diligence. He must exhibit high standard of performance

and must not be careless. The agent must handle the goods of the principal properly

so that they are not destroyed. UBN PLC V UWA PRINTERS (NIG) LTD;

OMOTAYO / OJIKUTU; BAXTER / GAPP AND CO. LTD. An agent impliedly

agrees to use reasonable diligence and skill (except for a specialist, who is held to a

higher degree of skill) in performing the task in its entirety.

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An agent has the duty to act solely for the benefit of his or her principal, and

not in the interest of agent of a third party. He must promote the interest of his

principal. He must not do anything that is in conflict with the interest of his

principal. The agent must not disclose confidential information about the principal

and must not compete with the principal. He must also not make secret profits. The

duty of loyalty also requires the agent not to use confidential information acquired

in the course of the agency to the disadvantage of the principal. Where the agent

has allowed his interest to conflict with his obligation to his principal, the contract

is voidable at the option of the principal.

(d) Duty to keep accounts

An agent is under a duty to keep accurate accounts of monies and

properties received or spent by him on behalf of the principal; including gifts

received from third persons. The duty to account involves keeping accurate records

of amount of money involved in every transaction, not having to join his money

with that of his principal and not to misuse the property belonging to the principal.

The Supreme Court of Nigeria in GODWIN V CAC stressed this duty when it held

that it is the duty of every agent to keep the money and property of his principal

separate from his own and that of any other person.

(e) Duty of notification

The agent is under a legal duty to keep the principal abreast with important

information he acquired from third parties while acting on behalf of the principal.

In other words, the agent is required to notify the principal of all matters that come

to the agent's attention concerning the subject matter of the agency. The duty of

notification is essential considering the fact that whatever information acquired by

the agent in the course of the agency is deemed to have been acquired by the

principal. As a result, the principal must be in constant communication with the

agent.

() Fiduciary duty

In a nonagency contractual situation, the parties' responsibilities terminate

at the border of the contract. There is no relationship beyond the agreement. This

literalist approach is justified by the more general principle that we each should be

free to act unless we commit ourselves to a particular course. But the agency

relationship is more than a contractual one, and the agent's responsibilities go

beyond the border of the contract. Agency imposes a higher duty than simply to

abide by the contract terms, It imposes a fiduciary duty. The law infiltrates the

contract creating the agency relationship and reverses the general principle that the

parties are free to act in the absence of agreement. As a fiduciary of the principal.

the agent stands in a position of special trust. His responsibility is to subordinate

his self-interest to that of his principal. The fiduciary responsibility is imposed by

law. The absence of any clause in the contract detailing the agent's fiduciary duty

does not relieve him of it. The duty contains several aspects.

2. Duties of principal to the agent at common law (rights of the agent)

These entail the legal obligations the principal has towards the agent, the

breach of which makes him liable to the agent. By implication, the duties of a

principal are the rights of the agent in the agency relation. There are five major

duties of the principal towards the agent: (a) Compensation, (b) Reimbursement,

following section.

(a) Compensation

The agent is entitled to remuncration or compensation for work donc on

behalf of the principal. Where the agent and the principal have agreed on the

remuneration to be made, the principal is bound to pay such remuneration in a

timely manner. Where there is no such agreement, the law requires the principal to

pay what is reasonable.

(b) Reimbursement Whenever an agent disburses sums of money to fulfill the principal's

request or to pay for necessary expenses incurred in the reasonable performance

of his or her duties, the principal is under a duty to reimburse or indemnify the

agent. The principal will be bound to perform this duty only if the expenses

incurred by the agent were authorised by the principal within the scope of the

agency and necessary to discharge the duties of the agent in the relationship.

Generally, a principal must indemnify an agent for liability incurred in the

performance of her duties. This generally arises when the instructions of the

principal subject the agent to liability to a third party. If an agent exceeds or acts

outside of the scope of her authority, the principal may be relieved from the duty to

indemnify. If the principal later ratifies the actions of the agent, she will incur the

obligation to indemnify the agent against liability.

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(d) Safe working conditions

The principal is under a duty to provide safe working conditions in order for

the agent not to be injured while acting for and on behalf of the principal. He has

two main duties: (i) to provide its agents and employees with safe working

premises, equipment, and conditions, and ii) to inspect working conditions and

warn agents and employees of unsafe areas.

REMEDIES FOR PRINCIPALS AND AGENTS IN BREACH OF AGENCY

The breach of agency relationship may give rise to a claim for damages or

other remedies available to the innocent party. The innocent party may be the

principal or the agent and the remedies available to either of the parties may depend

on the terms of the agency agreement, the nature of the breach and the

circumstances of the particular case. These remedies are discussed hercunder.

REMEDIES AVAILABLE TO THE PRINCIPAL

The remedies available to the principal include the following.

(a) Dismissal

The principal may bring the agency relationship to an end or otherwise

dismiss the agent from his employment without notice due to a breach of the

agency agrement. In an action of the agent for wrongful dismissal or for

indemnity, the principal may set up the agent's breach as a complete defence to the

action.

(b) Rescission and Damages

The principal may also rescind any contract made on his behalf without

authority. Additionally, the agent may also be accountable to the principal for any

damage resulting from the breach and may be required to refund any secret

commission or profit made or any other advantage obtained therefrom

The principal may take an action to compel the agent to render an account

of all his dealings on his behalf in respect of their agency relationship. The agent

may also be made to account for any money or other property had and/or reccived

on behalf of the principal in the process of executing the terms of the agency.

(d) Action in Tort

The principal may in addition sue the agent for conversion where the agent

had received property on his behalf and has misappropriated or misused it. The

principal may also institute an action in negligence based on the negligent

performance or discharge of duties by the agent provided the agency relationship is

not contractual. In respect of conversion, see HENACHO V UZOCHUKWU. In

respect of negligence, see ODINAKA VMOGHALU.

The principal is also entitled to take out a direct criminal summons against

the agent where the agent's conduct, act or omission is criminal in nature. This will

be in addition to the principal's remedy in damages.

0 Withholding of commission or an action to recover same

The principal may refuse to pay the agent his commission or other

remuneration in connection with the transaction or to sue for the recovery of any

commission already paid to the agent. In Andrews v Ramsay & Co, 'A' instructed

'R' to sell a property and agreed to pay him fifty pounds commission. R sold and

received one hundred pounds from the purchaser as deposit, of which he paid fifty

pounds to A, retaining the other fifty pounds in payment of his commission with A's

consent. A learnt that R had also received twenty pounds as commission from the

purchaser, and sued to recover the twenty pounds and also the fifty pounds he had

paid to R. It was held that he was entitled to recover both sums from R.

REMEDIES AVAILABLE TO THE AGENT

If the principal is in breach of any agency agreement or any term thereof,

the agent is entitled to and may claim any of the following remedies.

(a) Action for damages

The agent may sue the principal to recover any loss or injury he may have

suffered as a result of the principal's failure to perform any of his duties under the

agency relationship. The agent may also sue the principal and claim damages for

the principal's failure to pay him any agreed remuncration or commission.

(b) Right of Set-off

In an action of the principal against the agent, the agent may claim a right of

set-off or counter claim of any amount due to him from the principal by way of

remuneration, indemnity or reimbursement. This must be specifically pleaded by

the agent in his defence on the claim by the principal.

The agent has a right of lien on the property, goods or chattels of his

principal in his lawful possession or custody in respect of and up to the amount of

his claim for remuneration, losses, liabilities and expenses lawfully incurred and for

advances made in favour of the principal. This right is subject to any agreement

between the principal and the agent. Two types of liens are recognised under the

law. These are the general lien and particular lien. A general lien enables the agent

to retain his principal's property, chattels or goods until any sum duc to him by the

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principal is paid. A particular lien only enables an agent to retain such property,

chattels pending payment of any sums due in respect of the property.

(d) Right of Stoppage In-transitu

Where the agent stands towards his principal in the position of any unpaid

seller of goods, he may exercise the right of stoppage in-transitu against the goods

of his principal. He stands in such a position where having bought goods for his

principal, he pays the seller with his own money or incurs a personal liability to the

seller for the price.

TERMINATION OF THE AGENCY RELATIONSHIP

An agency relationship may be terminated in one of two ways: (a) by the act

of the parties or (b) by operation of law.

TERMINATION BY THE ACT OF THE PARTIES

This is where the end of the Agency relationship is occasioned by an overt

act by one or both of the parties with the intent of bringing it to the end.

(a) Termination via mutual Agrecment

Subject to the principle of irrevocable authority, an agency relationship may

be terminated by the parties by agreement. Under this situation, the agent and the

principal mutually agrec that the agency relationship should come to an end when it

is no longer beneficial to them or suits their purpose. The agreement to terminate

the agency relationship may be incorporated into the original agreement creating

the agency or it may be made at a later date.

(b) Termination by Revocation

Another method of termination of agency relationship by the act of the

partics is by revocation of the agent's authority by the principal. For revocation to

be effective, notice thercof must be given to the agent and the third party. Where

the principal revokes the authority of the agent and such revocation is not in

accordance with the terms of the agency agreement, the agent may sue the principal

to recover damages.

An agent through the act of renunciation may terminate an agency

relationship. In this regard, the agent unilaterally ends the agency relationship

between himself and his principal. Renunciation is effective only if notice thereof is

given to the principal. The principal will, however, not be entitled to notice of

renunciation where he has breached any of his duties to the agent. Renunciation by

the agent may be affected by a written instrument or by word of mouth or simply

by refusing to act. If the renunciation is wrongful, the agent may be liable to the

principal for the damage or injury sustained by the principal as a result.

TERMINATION OF AGENCY BY OPERATION OF LAW

The occurrence of certain conditions or circumstances could lead to the

sermination of the agency relationship. They are: (1) performance, (2) death of the

principal or agent. (3) insanity of the principal or the agent, (4) frustration, (5)

efluxion of time, and (6) bankruptcy of the principal.

(a) Termination by Performance

If the authority of an agent was given to achieve a specific result or object,

it is natural that such authority terminates upon the object of the power being so

accomplished or achieved. Thus, it has been held that the authority of a Solicitor

engaged to prosecute a particular case ceased at judgment in that case. Similarly, if

the authority of an agent was given to perform a specific task or carry out a specific

transaction, his authority ceases automatically by the accomplishment or

completion of that task or transaction. In BLACKBURN V SCHOLE, Lord

Ellensborough held that a broker who was engaged to sell goods became functus

officio when the goods were sold.

(b) Termination through Death of Principal or Agent

Death of either the principal or the agent operates to terminate an agency

relationship. Where the principal has died, the law considers the agency

relationship he entered into with his agent as having come to an end. If the agent

still acts on bchalf of the dead principal, the contract created by the agent with the

third party is of no effect. The situation will still be the same even where the agent

had no knowledge of the death of the principal. Thus, in SMOUTH VILBERY, a

butcher who sued for the price of meat supplied to a woman whose husband had

died at the material time was held unable to recover such price from the deccased

husband's estate, because the authority of the wife to buy on her husband's behalf

had been revoked by the death of the husband. In such a situation, however, the

agent will be liable to the third party in damages for breach of an implied warranty

of authority. See also FRIEND V YOUNG where it was held that the death of the

agent also determines the agency.

It is pertinent to notc, however, that where an agency gives the agent an

irrevocable authority, the death of the principal or agent does not terminate the

agency relationship. An irrevocable agency is one in which the agent's authority is

Commercial Law

coupled with an interest. This may arise where a party has a property interest in the

subject matter of the agency and the authority is granted for the purpose of

protecting that interest. In other words, this takes place if the agency is created for

the purpose of securing the interest of the agent. Thus, in SMART V DANDERS, a

principal consigned goods to a factor for sale and the factor lent money to the

principal in consideration of a promise by the principal not to revoke the factor's

authority to sell the goods. It was held that the authority was irrevocable.

In GAUSSEN Y MORTON, X owed Y a sum of money and, in order to

discharge the debt, he executed a Power of Attorney by which he authorised Y to

sell certain parcels of land belonging to him (X). He later purported to revoke the

authority, but Y ignored the purported revocation and sold the land. It was held that

Y was entitled to act as he did, because the authority given to him was coupled with

an interest (namely, payment of the debt) and so irrevocable.

Insanity of the principal or agent operates to terminate the agency

relationship except in cases of irrevocable authority. Once the principal is insane,

he becomes incapable to act for himself and if he cannot act for himself because of

his insanity, the agent can no longer act for him.

(d) Termination by Frustration or Change in Circumstances

Frustration or change in circumstances which renders the subject matter of

the agency unlawful or impossible to accomplish terminates an agency relationship.

Frustrating circumstances may include outbreak of war, destruction of the subject

matter of the agency contract, change in law, etc. Thus, in STEVENSON & SONS

LTD V AKTFUR CARTONNAGEN INDUSTRIES, it was held that the outbreak

of war between England and Germany automatically puts an end to the agency

between an English company and its German principal.

Termination by Effluxion of Time

Where the agency contract gives a specific period of time for the agent to

act on behalf of the principal, the law considers the agent's authority to act to have

come to an end when the period of time to act expires. This will still be the case

even if the task to be performed by the agent has been carried out or not.