LAW OF AGENCY

DEFINITION OF AGENCY

An agency can be defined as a legal relationship that exist between two parties, when one called the agent is employed by another called the principal to bring the principal into a legal relationship with the third party.

An agent is a person who is given the authority by the principal to enter into a contract on his behalf. The agent has the power to make a binding contract between his principal and a third party without himself becoming a party to the contract.

 

TYPES OF AGENTS

1) Universal Agent: This is an agent who has unrestricted authority to enter into a contract on behalf of the principal. He may even perform acts that his principal could have performed. This kind of agent is appointed by a deed known as power of attorney.

 

2) General Agent: This is an agent who has the authority to act in all matters of a particular business. He can perform any of the duties which are within the scope of a particular business entrusted to him, e.g. an accountant.

 

3) Special Agent: This is an agent appointed for a particular purpose, normally not part of his normal business activities, and is therefore given only limited powers.

 

4) Del Credere Agent: This is an agent who undertakes to indemnify the principal against any loss arising from the failure of the people to pay for goods sold. He receives in return extra remuneration which is higher than all other agents. A del credere agent guarantees payment to his principal for goods sold on his principal’s behalf and for which he receives additional commission known as del credere commission.

Features of Del Credere Agent

• He takes possession of the goods.
• He can sell in his own name.
• He undertakes to indemnify his principal against any loss.
• He receives higher commission called del credere commission.

 

5) Commission Agent: This is a merchant who buys and sells goods on commission. This agent usually exercises physical control over and negotiates the sale of the goods which are handled by him.

 

6) Factor: This is an agent who is employed to sell goods delivered to him by the principal for a commission. He has possession of the goods and can sell in his own name.

Features of a Factor

• He has the right of lien on the goods in his possession.
• He can handle and sell goods in his own name.
• A factor can issue receipts on his own name.
• He can give the usual business warranties.
• The factor has the authority to raise money on security of goods.
• He can sue the principal for commission.
• The agent can grant credit to the buyer.
• He has an insurable interest in the goods.

 

7) Broker: This is an agent who brings the principal into a contractual relationship to buy or sell goods or services with the third party. He links the principal with the third party and receives commission termed brokerage. They can be found in the stock exchange market, the insurance industry, etc.

Features of a Broker

• He has no lien on the goods.
• The broker does not possess the goods.
• He collects commission called brokerage.
• He has no power to pledge the goods.
• He cannot sell in his own name.
• A broker is not liable to the principal if the buyer of the goods default.
• He also acts as agent of the buyer and seller.

 

8) Auctioneers: These are agents authorised or empowered by the law to sell goods for their principal at a public auction to the highest bidder.

Features of an Auctioneer

• He has a lien on the goods for his charges.
• He may or may not have the goods in possession.
• The auctioneer can act as agent to both the seller and buyer by implication.
• He is licenced to sell goods on auction to members of the public.

 

9) Advertising Agent: These are agents whose roles include assisting the firm in planning and executing their advertising programmes. More specifically, the agent advises clients on advertising strategies, creates advertising copy, supervises advertising production and buys air time and media space to place their clients’ adverts.

 

10) Manufacturers Agent: These are representatives or firms chosen by a manufacturer to market its goods in a certain area. The manufacturer will pay them commission and they can represent more than one producer at a time. Moreover, they are sellers who act on behalf of a manufacturer. Sometimes they accept responsibility for any credit risk.

 

11) Shipping and Forwarding Agents: These are agents that act on behalf of the principal to clear and receive goods from the seaports or airports. The agents will arrange for the delivery of the goods to a particular place through the air, sea or land.

 

Differences between a Factor and Broker

Factor

1. A factor has possession of the goods.
2. He can sell in his own name.
3. He has a general lien on the goods.
4. He can be held liable for the goods.
5. He has power to pledge the goods.
6. He can issue receipt on his own name.

 

Broker

• A broker is not in possession of the goods.
• He cannot sell in his own name.
• He has no lien on the goods.
• He is not liable if the buyer defaults.
• He has no power to pledge the goods.
• He cannot issue receipt on his own name.

 

APPOINTMENT OF AGENTS

Agents can be appointed in the following ways:

1. By Necessity: Agency by necessity arises when an emergency situation happens. When somebody who is in possession of another person’s property has to do something to preserve the property, then we have agency by necessity, e.g. in the case of Great Western Railway Vs Swaffied (1874), the railway company transported a horse for Swaffied and on arrival at the destination, Swaffied was not available to take delivery of the horse. The company incurred some expenses in stabling the horse for the night and Swaffied did not reimburse them. In a ruling, it was held that Swaffied was liable to reimburse the company since they acted in good faith and to the benefit of Swaffied. Therefore, there is agency of necessity.
2. By Ratification: This arises when the principal ratifies or approves the actions of a person having no authority to act as his agent. He assumes all the rights and objectives under the contract as in the case of Bolton Partners Vs Lambert (1889). Lambert made an offer to A, the managing director of Bolton Partners. He accepted without authority from the company and the company subsequently ratified A’s unauthorised contract. Lambert withdrew the offer. It was held by the court that Lambert cannot withdraw the offer since the contract has been ratified by the company.
3. By Implication: An agent can be appointed impliedly where the principal, without expressly conferring authority on him, places him in a situation in which it is understood by them that he can act on behalf of the principal, e.g. partnership auctioneer.
4. By Estoppel: This arises when somebody by conduct or words allows another party to believe that somebody is acting as his authorised agent even where no agency was intended. He will be estopped from denying the agency if the other party relies on such representation, e.g. every partner is deemed to be an agent of the partnership, husbands and wives who are not separated as was the case of Spiro Vs Lintern (1993). Lintern owned a house and allowed his wife to induce Spiro to buy it. Although he did not give her the authority to sell the house, Spiro started carrying out some repairs on the house even as Mr Lintern denied that his wife had authority to sell. The court upheld that Mr Lintern had allowed Spiro to believe Mrs Lintern was his agent and was therefore estopped from denying her authority to contract on his behalf.
5. Expressly: This arises when an agent is appointed verbally or in writing by the principal. The agent can now enter into contract on behalf of the principal.

 

DUTIES OF AN AGENT

A good agent must perform the following duties:

1. He must obey or carry out all lawful instructions by the principal.
2. He has to exercise reasonable care, skill and diligence in performing his duties.
3. He must act in good faith and honesty by not engaging in any competing business to the detriment of the principal.
4. He must act personally, i.e ., he must not delegate his duties as an agent to someone else.
5. He must not misuse the confidential information in respect to the affairs of the principal.
6. He must render an account (i.e. stewardship) to the principal whenever required.
7. He must not take any secret gain beyond the authorised commission and any other remuneration.
8. He must not make secret profit or accept bribes in respect of the agency.
9. The agent must not misuse confidential information regarding his principal’s affairs.
10. The agent must keep proper account of all transactions connected to the agency.
11. He must not delegate his duties to another party.
12. An agent must follow the terms of agreement of the agency.

 

What an Agent Cannot Perform

1. He cannot vote on behalf of the principal.
2. The agent cannot give testimony in court on behalf of the principal.
3. An agent cannot execute an affidavit.

 

Rights of an Agent

1. Right to retain goods: The seller has a right to retain the possession of the goods if not paid for.
2. Right of stoppage in transit: The seller has the right to stop the goods going to the buyer in order to regain and retain the possession of the goods until he is paid.
3. Right of resale: The seller has the right to resell the goods especially perishables when he has notified the defaulting buyer who, despite the notice still failed to pay.
4. Legal action: The seller has the right to sue the buyer for the price of the goods if the buyer has taken possession of the goods.
5. Recovery of possession from the buyer: An unpaid seller has the right to recover the goods already delivered to the buyer.
6. Issue of ultimatum: Unpaid seller has rights to give ultimatum to the buyer compelling him to pay.

 

PRINCIPAL

A principal is the person who employs another person called, agent to act on his behalf. A principal contracting through an agent must have contractual capacity.

 

Duties of the Principal

These are the duties owed by the principal to his agent:

1. The principal must pay the agent the commission or other agreed remuneration.
2. The principal must not interfere with the efforts of the agent.
3. He must provide all necessary facilities to the agent for proper execution of the contract.
4. The principal must indemnify the agent for any expenses or losses incurred by the agents.
5. The principal must follow strictly the terms of the contract of the agency.

 

Rights of the Principal

1. The principal can sue the third party for damages.
2. The principal can sue the agent for default.
3. He can recover any secret profit from the agent.
4. He can summarily dismiss the agent.
5. He can refuse to pay the agent his agreed commission.

 

TERMINATION OF AGENCY

Agency can be terminated on the following grounds:

1. By Frustration: Agency can be terminated when the subject matter of the agency has been destroyed or frustrated, and for which neither party is responsible.
2. By Performance: An agency can be terminated when the principal and agent have performed their duties and obligations.
3. By Breach: The principal or agent can breach the terms of agreement, hence the agency is automatically terminated in such a situation.
4. By Agreement: The principal and agent can agree to bring the agency to an end, i.e ., the parties may at any time mutually agree to terminate the agency.
5. Death of the Principal or Agent: When any of them dies, the agency is automatically brought to an end.
6. By Completion of the Agency: The agency can come to an end when the period fixed for the agreement has expired.
7. Bankruptcy: Where the principal is bankrupt, the agency agreement will automatically come to an end.
8. By Operation of Law: The law of a country can render a trade or service illegal. In such a situation, any agency agreement with respect to such trade is terminated.
9. Insanity of the Parties: Agency can be brought to an end if any of the parties has mental disability.