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The Law & You: The Concept Of Agency In A Commercial Transaction

Introduction

Agency relationship is created by the mutual agreement of two parties. The essence of an agency relationship is not difficult to grasp. It is simply that whatever a man can do personally he can as well properly do so through another person. This is grounded in the Latin maxim that qui facit per allium facit per se, meaning “he who does a thing through another does it himself.” It is crucial that the principal must have authorized the agent to act for or represent him.

In other words, agency relationship must be shown to have been created between the two of them because it is a matter of contract.  However, whether an agency relationship exists in any situation depends not on the precise terminology employed by the parties to describe their relationship, but on the relationship between the alleged principal and agents. Once agency relationship is shown to exist and the agent is shown to have acted within the scope of his/her authority, the principal is bound whether or not the act is beneficial to him.

Meaning of Agency

An agent is a person who acts on behalf on another, known as the principal. The agent enters into binding contracts with other persons (third parties) on behalf of the principal. In Godwin vs. CAC (1998) 14 NWLR pt 584, the term “agent” was defined per Ogwuebu JSC as:

“Any person who acts for another in the capacity of deputy, steward, rent collector or any other agent or trustee”.

There are two main points of note in the above definition. The first is that the agent becomes the intermediary, the go-between, the conduit-pipe or a middleman as far as the principal and the third party are concerned. Secondly, it is manifestly clear that agency relationship contemplates the execution of lawful transactions. The after-effect of such relationship is that the benefit of the transaction goes to the principal. Similarly, the principal bears the liability resulting from the transaction provided the agent acted within his authority.

It is important to distinguish between an agent and a servant. A servant is a person employed to render services under the instruction or direction of his master and accordingly the master is not liable for the contract of his servant. On the other hand, an agent is one generally employed or appointed to arrange contracts between the principal and third parties.

The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities[1]. A business owner often relies on an employee or another person to conduct a business. In the case of a corporation, since a corporation is a fictitious legal person, it can only act through human agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency.

A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. It is not always cost effective to check whether someone who is represented as having the authority to act for another actually has such authority. If it is subsequently found that the alleged agent was acting without necessary authority, the agent will generally be held liable[2].

For a person to be called an agent in law, he must possess certain characteristics[3], such as:

  1. He must have the power to act.
  2. He must act for and on behalf of the principal.
  3. The consequence of such act must be to bind the principal and the third party.

Formation of Agency Relationship

An agency agreement can be written or oral or implied from conduct or relationship. The agency agreement must be in the form of a deed if the agent is given express authority to execute deeds for his principal.

Existence of express terms of the agreement which directly or by implication refers to the agent as receiving remuneration makes the relationship contractual. Many agents act without any remuneration i.e out of gratitude or friendship (gratuitous agents). In these circumstances the agent will owe the principal all the duties normally owed to a principal.

The relationship of principal and agent may be created in any one of the following ways[4]:

  • By express or implied agreement between the principal and agent;
  • Under the doctrine of apparent authority ;
  • By operation of law; and
  • By ratification of the agent’s acts by the principal;

The Necessity of Agency Relationship

The Law of agency is a very important part of commercial law as companies can only carry out their daily business activities through agents. The growth in commercial life, especially with the rise in trading companies showed that both in contract and tort, the issue of agency is vital. As a result of this pivotal position agents occupy in commerce they play a major role in the consummation of commercial transaction in modern times.

Duties of an Agent

1.      To act in the best interests of the principal

2.      No conflict of interest

3.      No secret profit

4.      Duty of confidentiality

5.      Duty to use care and skill

6.      Duty to account

7.      Duty of obedience[5]

Duties of a principal

The duties of a principal in an agency relationship include[6]:

1)      The Principal must make a full disclosure of all information relevant to the transactions that the Agent is authorized to negotiate.

2)      Pay the Agent either the commission or fee as agreed, or a reasonable fee if none were previously agreed on.

Termination:

  1. Withdrawal by the agent – however, the principal cannot revoke an agency coupled with interest to the prejudice of such interest. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e.g., where the goods are consigned by an upcountry constituent to a commission agent for sale, with poor to recoup himself from the sale proceeds, the advances made by him to the principal against the security of the goods; in such a case, the principal cannot revoke the agent’s authority till the goods are actually sold and debts satisfied, nor is the agency terminated by death or insanity[7].
  2. By the agent renouncing the business of agency;
  3. By discharge of the contractual agency obligations.

Alternatively, agency may be terminated by operation of law:

  1. By the death of either party;
  2. By the insanity of either party;
  3. By the bankruptcy (insolvency) of either party;

Conclusion

In our ever dynamic world where businesses expand and operate within various jurisdictions there is the need for agents who are appointed to act within the principal’s authority to be fully aware of their roles in order to effectively carry out their work. From the foregoing, it is safe to conclude that the role agents play in transactions ensures that the wheels of commerce keep grinding for the benefits of principals and third parties. In a fast-paced world agents are absolutely necessary. So the above article will help expand not only the agents knowledge on what he ought to do but also give the principal and the intending 3rd party an opportunity to get themselves enlightened too.

 

[1] https://en.wikipedia.org/wiki/Law_of_agency

[2] Ibid pg. 1

[3] http://hightowerlawyers.com/agents-in-commerce/

[4] https://www.lawteacher.net/free-law-essays/commercial-law/agents-play-a-vital-role.php

[5] https://www.eaa.org.hk/en-us/Information-Centre/Publications/Agency-Law/-5-Agents-duties-to-principal-under-common-law

[6] https://en.wikipedia.org/wiki/Principal_%28commercial_law%29

[7] https://en.wikipedia.org/wiki/Law_of_agency

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Foluke Akinmoladun

Foluke Akinmoladun is the Managing Solicitor of Trizon Law Chambers. She has been a legal practitioner for 13 years and has experience in a wide range of commercial matters. She is a certified mediator, a member of the Chartered Institute of Arbitrators(UK), holds an Advanced Diploma in Accounting from the Association of Chartered Certified Accountants (UK) and is also a tax consultant. She is a dispute resolution expert, handling commercial disputes from negotiations all the way to litigation (if need be).

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