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

a. 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.
b. 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;

a. 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.
b. FRANCHISING: a franchise can be said to be
a form of business organization in which a
firm which already has a successful product