Law of Agency

The employment of agents in commercial transactions has assumed great importance in modern business practice and thus the relationship between a principal and an agent is fundamental in the modern commercial law.

According to Robert Lowe, “it lies at the very heart of the subject and without it, modern commerce would not exist”. Others believe that commerce would literally come to a standstill if businessmen and merchants could not employ the services of factors, brokers, estate agents, auctioneers, and the likes were expected to do everything themselves.

Purpose of Agency

A variety of reasons have been given for the important role that an agent plays in the conduct of commerce:

1. The agent may possess special skill or expertise for which he is needed.
2. She/he may have special knowledge of a particular market, area or community.
3. Distance at times presents some difficulties, and therefore could be disadvantageous to the astute businessman; consequently he (the principal) finds it necessarily to appoint an agent in such distant places where he has business interests.
4. 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 so that it has become very necessary for a principal to employ the services of an agent.
5. The principal may simply be too busy to make every contact personally.

Essentially, the Law of Agency is concerned with the special rules put in place to regulate the complications and problems that may arise from the introduction of a third person to perform certain tasks on behalf of another. The employment of an agent introduces another person, whose conduct can affect in a variety of ways, the legal position of the one on whose behalf he acts and the one with whom he deals.

The Law of Agency is particularly common law; hence the cases provide a lot of insights into this area of the law.

Definition and Characteristics of Agency

There has never been any definition of agency which is comprehensive enough for all purpose and free from controversy. This is due to the complex nature of the subject matter and thus the alternative would be to do an analysis of the relationship between the parties.

AGENCY has been described as a special type of contract in which one party called the principal expressly or impliedly agrees that the other party called the Agent should act for him for the purpose of bringing him into a contractual relation with a third party.

FRIDMAN in his Law of Agency talks of agency as:

...the 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 affect the principal’s legal position in respect of strangers to the relationship by the making of contracts on the disposition of property.

ADESANYA and OLOYEDE defined agency as:

a consensual relationship existing between two parties by which one, the agent, expressly or impliedly authorized to act on behalf of another, the principal, in any dealings with the third parties.

Another attempt by the AMERICAN RESTATEMENT OF THE LAW OF AGENCY talks of Agency as:

...the relationship which results from the manifestation of consent, by one person to another, that the other shall act on his behalf and subject to his control, and consent by the other so to act.

NB: The agent is an instrumentality or conduit pipe through which the principal acts and he immediately drops out of the arrangement after accomplishing the transaction between the principal and a third party.

• Agency contemplates the execution of a lawful transaction. If an agent carries out an unlawful act, he becomes liable as a party to the offence or as a joint-tortfeasor with the principal.
• The idea behind the concept of agency is the recognition by the common law that a person need not always do things that change his legal relations himself. He may utilize the services of another person.

Legal Implications of the definition of Agency

*The act of the agent in concluding a contract on behalf of the principal binds the principal and will therefore create reciprocal rights and liabilities or privity of contract between the principal and a third party.

*The act of the agent will bring about the same consequence on the principal as if he had contracted for himself. This is expressed by the Latin maxim, oui facit per alium facit per se (He who acts through another acts for himself).

Characteristics of Agency Relationships

1. Agency creates two types of relationships: a bi-partite relationship between the principal and the agent on the one hand a tri-partite relationship between the principal, the agent and the third party.
2. The law of agency applies only in situations where the agents’ representation or action on behalf of the principal affects the principal’s legal position that is his rights against, and liabilities towards other people.
3. Agency relationship arises only in circumstances where it is considered in law to arise. It is not what the parties choose to call their relationship, or intend it to be, that matters, but the effect the law attaches to it.
4. Admittedly, most agency relationships arise from agreement or consent whether express or impliedly but not all agency relationships are consensual. For example, in the case of agency of necessity or estoppel, there is no form of agreement or consent.
5. In an agency relationship, the agent represents the principal and thus he is like the ‘alter-ego’ of the principal or at least a conduit pipe connecting the principal and the third party.
6. Agency creates fiduciary relationships, that is, a relationship of trust and confidence honesty.
7. Agency, although creates an exception to the rule of privity of contract; but since the law allows an agent to be channel connecting the principal and the third party. Generally it is opined that it reinforces the rule of privity in such situations because the agent drops out of the transaction and allows the principal and third party to have a direct contractual relationship.

The primary role of agents is the negotiation and conclusion of contracts. But “agency” is a very flexible concept. Although the legal definition of the word agency bears a close resemblance with the popular concept of the word, the word agency is sometimes used in a particular sense. For example

• a car dealer is loosely referred to as an agent.
• a distributor of a certain make of a product manufactured by a particular industry or firm is also referred to as an agent.

The above types may be described as the “MANUFACTURERS SOLE AGENT” in a given area.

That however does not mean that when a dealer sells a car to a customer, he is acting as an agent in the strict legal sense of the word. In practice, such a dealer buys the car or products from manufacturers and sells on his own account to purchasers. In this case, he sells not as an agent but in his own right as a principal.

The existence of agency relationships in the legal sense is a matter of law, in that there is no need for the parties to intend to create a relationship of agency to exist. The law may hold such a relationship to exist even when the parties did not contemplate it.

The distinction between a “SOLE AGENT” and “AN AGENT” in the legal sense can be illustrated with the case of Lamb W.T and Sons v. Goring Brick. In this case, the defendant appointed the plaintiff a “SOLE SELLING AGENT” for their goods for a fixed period but before the expiration of that period, they informed the plaintiff that they would henceforth sell the goods themselves. It was held that the intention to start reselling the goods themselves amounted to a breach of contract since thy have given the sole selling to the plaintiff for a fixed period, and are therefore bound by that contract.

Agency distinguished from other relationship

There are several other relationships recognized by law which show some of the features of an agency relationship. Even though recent commercial developments have tended to assimilate these distinct relationships, it is still important to separate and distinguish the relationship the relationship of principal and agent from other similar ones.

Agency and Trusts

Trust involves an equitable obligation binding on a person called a trustee to deal with the property over which he has control for the benefit of another person called the beneficiary.

Similarities

• In both cases they are part of a fiduciary relationship in that both are persons who act on behalf and for the benefit of others.
• Both of them must not allow their interest to conflict with their duties.
• In both cases, they may be able to transfer a good title to a bonafide purchaser in good faith.
• Certain equitable remedies in respect of property in the hands of an agent may in the same way that they are available to the beneficiary against a trustee. For example, an agent who makes a secret profit must account for it in equity, in the same way as a trustee who makes a secret profit out of his trust.

Differences

• A trustee is the legal owner of property but an agent is only authorized on behalf of the principal.
• An agent represents his principal, and can create contractual relations between his principal and 3rd persons but a trustee is not in any way the representative of his beneficiaries; hence does not involve his beneficiary in personal responsibility for the trustees acts, whether in contract or not.
• An agency can generally be created between parties without any special form, but in many cases a trust must be created in writing.

Agency and Bailment

A bailment is the delivery of personal property by one person to another for a specific purpose in the understanding the property would be returned after the special purpose is achieved.

A bailee is the person who receives possession of goods from the owner for the specific purpose.

Similarities

• Ipso factor a bailee is not normally an agent of the bailor. However when exercising some of his powers over the property e.g. to have them repaired or serviced, the bailee incidentally involves the bailor in liability on contract made for the purpose just as an agent can involve a principal.

Differences

• The bailee does not represent the bailor. He merely exercises with leave of the bailor, certain powers in respect of the property.
• The bailee has no power to make contracts on the bailors’ behalf; nor can he make the bailor liable, simply as bailor for any of his acts.

Agency, Servants and Independent Contractors

A servant is one who, by agreement, whether gratuitously or for his reward gives his service to another.

An independent contractor on the other hand, is one who by agreement, usually for reward provides services for another.

Both terms describe people who (like agents) have power to act for others. The servant is said to be someone who is completely subject to the control of his master as to what he does and how he does it; whereas an independent contractor is his own master, but must provide what he has contracted to provide in the way of work or services.

It has been suggested that the distinction between servants and independents contractors on the on hand and agents on the other hand is essentially on of action, in that agents are mainly employed to make contracts and to dispose of property, while servants are often employed for other tasks

Classification of Agents

As a result of modern developments in commerce and the changing need for specialization, certain types of agents have distinguished themselves by name and function. Consequently, they have been invested with varying degrees of authority or power often stemming from the customs and usage of the particular community, trade, business or profession in which they operate.

NB: The important 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.

Agents are generally divided into 3 main classes. They include

Special Agents

This type of agent is appointed to carry out or perform a specific action or to represent his principal in some particular transactions which is not within the ordinary course of his business.

For example, where X appoints Y his agent for the purpose of providing for him a machine suitable for sewing clothes. The only authority given to Y as agent is that necessary to produce the type of machine mentioned.

N.B: The scope of authority of a special agent is therefore necessarily limited to the performance of a specific task as a rule he is not entitled to alter or extend his sphere of operation belong the strict limit of his employment.

If he acts outside his instructions, his unauthorized action will not bind his principal.

Special Agents

A general agent is

1. One who is employed to do some actions in the ordinary course of his business or profession as an agent on behalf of his principal.
   For example, a solicitor, factor, broker or auctioneer who is employed to perform in the ordinary course of his business is a general agent of his employer in relation to that employment.
2. One whose authority extends to the performance of any act whether specially authorized or not which becomes incidental or necessary to the performance of some general scheme of operation for which he is employed.

Universal Agent

A universal agent is one whose authority is unlimited, that is, he has authority to act for his principal without any restrictions. Such types of agents are rare in practice but when they do exist, they are appointed by extensive powers of Attorney. The only limits which are imposed upon the authority of a universal agent are those of which the law imposes with regards to the legality of the object and the capacity of the parties in relation to contracts in general.

Types/Kinds of Agency

Within the general classification of agents can be found particular types of agents. Some of these types distinguished by name and function have been invested, as a matter of law, with varying functions stemming from the authority they possess as agents employed in a particular trade, business or profession. Some of the main characteristics of a number of special classes of agents are as follows;

1. Mercantile Agents
2. Del Credere Agents
3. Auctioneers
4. Attorney or Legal Practioners
5. Shipmaster
6. Confirming Houses
7. Some other Commercial Agents

Mercantile Agents

Section 1 of the Factors Acts 1889 defines a mercantile agent as a person “…having in the customary course of his business as such agent authority to sell goods or consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods"

This definition encompasses two types of agents recognized by the common law namely;

• Factors
• Brokers

FACTORS: The term ‘Factors’ is not defined by the Factors Act 1889. Under the common law, however, it has been defined as referring to a mercantile agent who has been entrusted with the possession of goods for sale only.

In Boring v. Corrie, Abbott C.J described a factor as referring to “…a person to whom goods are consigned for sale by a merchant residing abroad or at a distance away from the place of sale and who normally sells in his own name without disclosing that of his principal.” This definition was qualified in Steven v. Biller where it was held that an agent does not lose his character of factor by reason of his acting under special instruction from his principal to sell the goods at a particular price and to sell in the principals’ name.

A factor is therefore simply an agent to whom goods are consigned for the purpose of sale. He has possession of the goods, authority to sell them in his own name, and a general discretion as to their sale.

N.B:

• Possession of goods for the purpose of sale is therefore the distinctive mark of a factor.
• He has a right to receive money from the buyer and also a right to bring an action against the buyer for the purchase price.
• A factor cannot pledge the goods entrusted to him for sale.

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 usually called a brokerage. Such an agent is normally 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, unlike a factor, has no possession of the goods. Consequently, he has no lien on them, and as such can only sue in his principals’ name.

N.B: The essential distinguishing feature of a broker is that unlike a factor, a broker is not entrusted with the possession of the goods or merchandise in which he deals. Also, he cannot sell in his own name. Therefore, he has no authority as a broker to receive the price, and ordinarily not being entrusted with goods he has no right of lien.

Del Credere Agents

A Del Credere Agent is also a mercantile agent but the special feature of this type of agency is that th agent in return for extra commission called “del credere commission” promises to indemnify the principal if the 3rd party introduced by the agent fails to pay what is due under the contract. 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.

The liability is secondary and only arises when the buyer he procures for his principal refuses payment of what is due under the contract.

N.B:

• A Del credere agent is in the position of a surety to his principal for the due performance by the persons with whom he deals of contracts made by him with them on his principals behalf. Although it appears similar to a contract of guarantee, it is actually a contract of indemnity and need not be evidenced in writing as prescribed by Section 4 of the Statute of Frauds 1677. In the case of Omoregie v. B. Portland Cement Fabrik, the court held that in the absence of clear words or something definite in the parties’ course of conduct, a del credere agency could not be easily inferred.
• The obligation Del credere agency is confined to answering for the failure to pay any ascertained sums which may become due as debts. In other words, liability does not extend to other breaches of the contract by the other parties e.g. where the other parties breach the contract in some other manner such as refusal to take delivery of the goods.

The Del Credere agency may be inferred from the course of the conduct of the parties, but what is paramount is that there must be evidence of a higher reward due to the agent; otherwise del credere agency will be difficult to infer.

Auctioneers

Auctioneers are agents whose ordinary course of business is to sell goods or property by public auction, for a reward generally in the form of a commission.

An auctioneer is an agent licensed by law and authorized to sell goods or property for another at a public sale, called auction. He may or may not have possession of the goods to be sold but it is clear that when given such possession, auctioneers are “mercantile agents” within the Factors Act 1889.

Characteristics

He is primarily the agent of the seller but he may act as agent for both parties for the purpose of signing the memorandum of the sale provided he does so personally and at the time of sale.

He has implied authority to receive the purchase price of the sales in the case of goods, but cannot sell on credit.

He can also receive deposit in case of sale of land and he can sue for it in his own name.

He has possession of the goods auctioned in his own capacity etc.

Attorney or Legal Practitioners

A legal practitioner (or attorney at law) is a person who has legal authority to act on behalf of someone engaged in legal proceedings. However, the effect of his/her action will depend on the nature of the authority. A legal practitioner, acting under a general retainer has authority to accept service of process and appear for the client, but has no authority to commence an action unless he is specifically instructed to do so, or such authority may be reasonably inferred from the terms of the retainership.

N.B: While acting in his capacity as a legal practitioner, the attorney at law can however be liable in negligence. Any contract with his client relieving him of such liability is void. See Legal Practitioners Act 1975 Sect 9. The exception is where he acted gratuitously or his negligence arises from the conduct of his client’s case in court or tribunal.

Shipmaster

The shipmaster has authority to enter into contracts in matters relating to the usual employment of the ship e.g. contract for repairs of the ship or purchase of necessaries when he cannot communicate with the owner; and where he can in no other way obtain money thereafter he has authority to give customary bond for such necessaries. This would only blind the owner if given strictly for necessaries and bonafide.

Confirming Houses

In the export trade, when the supplier receives an order from a customer abroad, he may seek confirmation of that order by a person or firm in the suppliers’ 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 buyer abroad fails to perform the contract.

The operation of this type of agency is aptly illustrated by the case of SOBELL INDUSTRIES v. CORY BROSCO. Here, the 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 confirmers were liable for damage for non-acceptance.

Some other Commercial Agreements

It is apparent that agency is only one of the possible arrangements which may be used by a business as a means of marketing its products or services

Therefore, it is necessary in any given case to examine arrangements closely in order to decide if it does amount in law to an agency. In this regard, some of the other possible relationships that may be used are;

1. DISTRIBUTORSHIP: in a distributorship, the manufacturer will agree to supply the dealer with products, and may well agree not to appoint any other distributor for its products in the dealers’ area. In return, the dealer will normally agree to develop the market for the manufacturers’ products and possibly not to sell competing products.
   The relationship between the manufacturer and the dealer will largely depend on the terms of the distributorship agreement.
2. FRANCHISING: a franchise can be said to be a form of business organization in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchiser) operating under the franchisors trade name and usually with the franchisors guidance, in exchange of a fee.
   Franchising thus is an agreement where one party (the franchisor) grants another party, (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes to produce and market goods or service according to certain specifications.
3. SUBSIDIARIES: another method often used is for a business to establish a network of subsidiaries to market its products and/or services. This course is often taken by companies, which markets products through a network of trading subsidiaries. Each subsidiary company will have a separate legal personality from the holding company or proprietor.