Law of Agency free essay sample

The agent has power to affect the principal’s legal position vis-a-vis a third party e. g. by entering into a contract or disposing of the property of the principal. Agency has been defined in different ways by different scholars. According to Fridman in his book ‘Law of Agency,’ ‘Agency is 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 or the disposition of property. Bowstead has defined agency as: ‘The relationship that exists between two persons one of whom expressly or impliedly consents that the other should represent him or act on his behalf and the other of whom similarly consents to represent the former or so to act. We will write a custom essay sample on Law of Agency or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page ’ Prof. Powell defined an agent as: ‘A person who is authorized to act for a principal and who has agreed so to act and who has the power to affect the legal relationship of his principal vis-a-vis a third party. The American restatement of the law of agency defines 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. ’ In the case of Ikemefuna C. Amadiume Anor v. Mrs Agnes Solomon Ibok (2006) All FWLR pt 321 pg. 1247, the Court of Appeal defined an agent as: ‘Any person who acts for another in the capacity of deputy, steward, rent collector or any other agent or trustee on oath. ’ Also, in E. A. Okoyode v. FCDA (20006) All FWLR pt 298 pg 1200 at 1405, the Court of Appeal also defined an agent as ‘One who is authorized to act for or in place of another. ’ Here, the Court of Appeal was actually quoting the Black’s Law Dictionary 7th edition. Seavey defined agency as: ‘A consensual relationship. ’ This Seavey’s definition has received judicial approval in Garnac Grain Company Ltd v. HMF Faure Fair Clough Ltd. (1967) 2 All ER pg 353. In that case, Lord Pearson said, ‘The relationship of principal and agent can only be established by consent of the principal and the agent. They would be held to have consented if they had agreed to what amounts in law to such a relationship even if they do not recognize it themselves and even if they have professed to disclaim it. ’ Note that this statement has been criticized by Fridman. This is because this idea of consent as the basis of agency relationship is contestable because there are circumstances in which the agency relationship exists without the consent of the parties or even against the wishes of either one of them or even both of them. See for example Phibbs v. Boardman (1965) 1 All ER pg 849. In that case, the defendant who was not appointed as an agent but acted as one and made secret profits was compelled by the court to yield over the secret profits to the beneficiaries. This shows that some of the obligations of an agent are imposed by the law regardless of the agreement of the parties. There are other instances in which agency relationship is not by consent but by operation of law. Examples are agency of necessity and a deserted wife’s right to pledge the husband’s credit. AGENTS DISTINGUISHED FROM PERSONS IN SIMILAR CIRCUMSTANCES Agent and Trustee An agent and a trustee occupy similar position. Both the agent and the trustee deal with the property for and on behalf of another person. Whereas an agent deals with the principal’s property, a trustee does so, on behalf of the beneficiary. As a result, both of them can affect the legal position of the person on whose behalf they are acting. An agent can sell and transfer the principal’s property to a third party. A trustee can also transfer the trust property to a third party. Just as a principal can trace, in agency, his property in the hand of a thirdh, party, a beneficiary can also trace his trust property in the hands of a third party in trust elationships. A trustee is a fiduciary and an agent is also a fiduciary. They both occupy a fiduciary position. Therefore, an agent must not make secret profits just as a trustee. An agent and a trustee must not act in a way that will conflict with their duties. The following are however the major areas of distinction between the agent and the trustee. Whereas a trustee i s the legal owner of a trust property, an agent is not a legal owner of the principal’s property. Secondly, an agent can always represent the principal within the scope of his property. On the other hand, a trustee does not represent the beneficiary in the same way as the agent represents the principal. Thirdly, agency relationship to some extent is based on consent. A trustee and beneficiary relationship is not necessarily based on consent between the trustee and the settlor. Again, the relationship of principal and agent arises largely as a result of the manifestation of consent. Therefore, an agent normally creates a contractual relationship between the principal and a third party. Agents, Servants Independent Contractors All these people are engaged to act on behalf of another person. A master has a right of control on how a servant should carry out his duties. This right does not exist in the case of an independent contractor or possibly in the case of an agent. Note however that this control test in relation to servant, agent and independent contractor has been criticized to distinguish between the position of an agent and that of a servant. The essential distinction between an agent, servant and independent contractor is one of function. An agent is engaged to make contracts and to dispose the property of the principal. Truly, the duties can overlap in a single situation. This is because a single person can act both as a servant and an agent while being an independent contractor. A single person may perform the duties of these 3 categories. AGENT AND BAILEE A bailee is a person who has possession of goods from or for the owner of the goods for a specific purpose. The concept of bailment overlaps with that of agency especially where the agent receives possession as a factor or a mercantile agent. CREATION OF AGENCY Formalities There are no formalities required for the appointment of an agent and this has been adequately or succinctly put by Lord Cranworth in Pole v. Leask ‘No one can become the agent of another except by the will of that other person. His will may be manifested in writing or orally simply by placing another in a situation which according to ordinary usage of mankind that other is understood to represent and act for the person who has so placed him. ’ An appointment for example could be sending goods to an auctioneer or broker. Capacities The general rule is that both the principal and the agent must be capable of acting as principal and agent. This is governed by the general rule of contract. However, see what Lord Denning said in the case of Shepherd v. Cartwright (1953) 2 All ER page 608 particularly page 618-619 where he said ‘The appointment by an infant of an agent has always been void. ’ Incidentally, the same Lord Denning retracted in a later case of G v. G (1970) 3 All ER pg 546 at 549. It was held that: ‘An infant could appoint an agent to pay maintenance for the support of his illegitimate child, since that was a lawful act for him to do and one which he could be compelled to do. Where the principal suffers from mental disorder, the general rule is that the contract is nevertheless binding on him unless he can prove that he was so insane as not to know what he was doing and that this was known to the other party. See the case of Imperial Loan Company v. Stone (1892) 1 QB pg 599. Note however that in the case of Young v. Toynbee (1910) 1 KB pg 215, the insanity of the principal was held to terminate his agent’s authority automatically, a lthough the agent was not aware of the insanity. OBLIGATIONS OF AN AGENCY RELATIONSHIP Duties of an agent An agent having accepted to be an agent, has certain duties to perform. Such duties may arise from: The agreement he has entered into with the principal From the fiduciary nature of the agency relationship By and large, the following are the duties of an agent. Performance Where the agency is a contractual one, an agent must perform what he has undertaken to perform under the contract. This means that the agent is duty bound to carry out the contract that he has made to the principal. This is governed by the rule of contract. See Turpin v. Bilton (1843) 5 M G at pg 455. In that case, an agent was appointed by conduct to insure the principal’s ship. He failed to do so and the ship was lost at sea. It was held that the agent was guilty of a breach of contract and therefore, he was liable. It must be noted however that an agent is not bound to perform an illegal undertaking or a transaction which is null and void either at common law or under statute. See Cohen v. Kitttel (1889)2 QB d at pg 680. In that case, an agent was asked to take a bet for the principal. He failed to do so. The principal sued him for non-performance. It was held that betting was illegal and so the agent was not liable for breach of contract. Where the agency relationship is non-contractual, that is to say, where it is gratuitous, an agent is not obliged to perform the undertaking at all. It has been argued that in such an instance, the agent will not be liable for non-performance or failure to carry out his duty towards the principal. See Ibadan City Council v. Odukale (1972) 8 SC 128. The question has always been whether the agent of a gratuitous relationship is obliged to inform his principal of his intention not to perform. Prof. Powell for example in his book ‘Law of Agency’ concludes that there is a duty on the agent to inform the principal within a reasonable time and failure to do so will give rise to a liability in negligence. Note also that where an agent is instructed to buy specific goods, it is his duty to ensure that the goods supplied are in accordance with the specification. See Oto Hamman v. Senbanjo (1962) 2 All NLR pg 139. Obedience The agent must act in accordance with the authority which has been given to him by the principal. Such authority may either be express, implied or usual/customary authority. Within the usual or customary authority are duties that are general in such situations or the custom of a particular trade. These are called business customs, usages or instructions. The paramount consideration where there are no express instructions, usage or business custom to guide the agent is that the agent will have some discretion as long as he acts for the benefit of the principal. See Bonsor v. Musicians Union (1955) 3 All ER pg 518. An agent must keep within his authority and he must not disregard the instructions of the principal, even if this will benefit the principal. See Bertran Armstrong v. Godfrey (1830) 1 KNAP pg 301. In that case, an agent was instructed to sell stock at a certain price (85 pounds or more). He waited until the price came up to 85 pounds which was the price he was instructed to sell but he decided to wail further for a higher price. The price came down. He was held liable for not selling at the price he was instructed to sell. Note however that where the principal’s instructions are ambiguous, the agent may not be liable if he did what he considered to be reasonable and what he thought will benefit and interest the principal even though the principal never intended the act. Care and Skill An agent must perform his undertaking with due care and skill. All agents owe this duty to their principal whether the agency is contractual or gratuitous. Nevertheless, a distinction is usually drawn between the standard of care to be observed in each case. A gratuitous agent is only bound to display or show such skill as he in fact possesses. See Giblin v. McMullen (1868) LR pg 317. In that case, an agent who was acting gratuitously made a mistake when acting for his principal as a result of which the principal’s property was liable to forfeiture and was seized. It was held that the agent was not liable to the principal since he had exercised the same care and skill in respect of his property. On the other hand, a contractual agent must display or show the degree of skill which an agent in his position will usually display. Again, this distinction has been criticized by Prof. Powell in his book ‘Law of Agency’ at pg 304. The question is whether it is fair to hold a gratuitous agent liable for any lack of reasonable care not amounting to gross negligence. See Omotayo v. Ojikutu (1961) All NLR pg 901. Non – Delegation (personal Performance) The general rule is that an agent must perform his undertaking personally. The relationship of principal and agent is a confidential one. The rule is expressed in the Latin maxim ‘delegatus non potest delegare. ’ Therefore, the employment of a sub-agent by his agent is a breach of his duty to the principal unless he has been permitted either by law or by the agreement of the two parties. See Allan v. Europa Postal Services Ltd. (1968) 2 All ER pg 575. It must be noted however that there are certain exceptions to the general principle of delegatus non potest delegare. These include: The agent can delegate where the act is purely ministerial and not involving confidence or where it involves the exercise of discretion. Where the principal has expressly authorized the agent to delegate his power. Where the power to delegate can be implied from the circumstances of the case. See De Bussche v. Alt (1878) 8 Ch Div pg 286 An authority to delegate may and should be implied where the usage of the transaction permits it. Where the authority to delegate is derived from a statute or legislation. Respect of Principal’s Title or Estoppel An agent cannot deny the title of his principal to goods, money or land in his possession on behalf of his principal. The possession of the agent is the possession of the principal for all purposes including the acquisition of title under the statute of limitation. Note however that there are circumstances in which an agent may be able to refuse to assent to a claim by his principal to the principal’s title to property which are in his possession. E. g. if a third party is entitled to the property in question, the agent may set up the title of such third party i. e. us tertii, provided that the agent is defending on behalf and by the authority of the third party or if he has handed the property to him i. e. if he has already settled with the actual owner. Note however that an agent must not have knowledge of the adverse claim (the third party’s claim) at the time of taking possession. If he knows, then, he cannot setup the adverse claimant’s title against the pri ncipal. Duty to account An agent must pay over to his principal all the sums received by him on behalf of his principal. See Blaustein v. Maltz Mitchell (1937) 2 KB pg 142. This means that an agent must always keep his principal’s property distinct from his own and keep proper account of such property. See Ogbonnaya N. Godwin v. The Christ Apostolic Church (1998) 12 SCNJ pg 213 at 215. In that case, the appellant was a pastor in the respondent church. He supervised all the branches of the church in 2 eastern states and lived in a property which belonged to the Church in Enugu as his personage. He was dismissed in Nov. 1979 after serving the church for about 17 years. He refused to vacate the residential premises and was ejected by a court order after the determination of a suit for his ejection. In that action between the parties, the High Court made findings of fact to the effect that the appellant was an employee of the church. In this later action, the church as the plaintiff claimed against the appellant to render an account and hand over to the church several items of property which were alleged to be in his possession by virtue of his appointment and an account of all monies standing to the credit of the church in 2 named banks and in the personal custody of the defendant and/or his treasurer as at the 29th Nov. 979 and payment over to the plaintiff of the balance so found. The church also claimed against the defendant an injunction for him to stop parading himself as a pastor. The defendant denied being an employee of the church and being in possession of any of the properties of the church. It was also his contention that he was not an accounting party. The High Court held that the appellant was an accounting party who ought to account to his employer i. e. the churc h, but however, held that the issue of whether the appellant was an employee of the church from 1962 to 1979 was res judicata. The church appealed to the Court of Appeal against the judgment and the appeal succeeded to the extent that the defendant was ordered to render account to the church in respect of the two bank accounts. The Court of Appeal affirmed the findings of the High Court that the appellant was an employee of the church and that he had a duty to account to the church for all the properties and money in his possession in respect of his stewardship. The appellant’s appeal to the Supreme Court was dismissed. The Supreme Court held inter alia 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 person. The right of a principal to have such an account rests upon the fiduciary relationship existing between him and the agent which term includes any person who acts for another in the capacity of deputy, steward, rent collector or any other agent or trustee. It is the first duty of an accounting party to be constantly ready with his account. The defendant/appellant in this case had not shown any willingness to do so. He neglected to do so. ’ Fiduciary Duties (Fidelity or Good Faith) An agent stands in a fiduciary relation to his principal and as such he must act in good faith and must not allow his interest to conflict with his duty. E. g. he must not make secret profits. The position of an agent who makes secret profit was considered at length by Lord Denning in Phibbs v. Boardman (supra). In that case, the defendant (solicitors) were treated as having acted as agents of a trust even though they were not appointed and it was held that some profits made by them when dealing with the trust property should be yielded over to the beneficiaries even though they had not acted dishonestly. Lord Denning said: ‘it is quite clear that if an agent uses property with which he has been entrusted by his principal so as to make profits for himself out of it without his principal’s consent, then, he is accountable for it to his principal. ’ The same rule applies when an agent makes use of a position of authority or when he uses information or knowledge so as to gain money for himself. The courts had held that such position of authority, information or knowledge is part of the property of the principal. It must be noted that even when the agent is not paid, he must not make secret profits from his position. See Turnbull v. Garden (1869) 20 LT pg. 218. In that case, an agent who was employed without commission to purchase an outfit for his principal’s son obtained a discount on the purchase but he charged the principal with the full price. It was held that the principal could not be compelled to re-imburse the agent more than the agent actually spent. The court further held that the agent could not make secret profits from the transaction. See also A. G. v. Goddard (1929) 98 LJKB 743. In that case, a police sergeant took bribe to conceal criminal offences. The court held that the money he took was an illegal profit. Similarly, in Reading v. A. G. (1951) 1 All ER 617, a soldier used his uniform to get drugs illegally through a police barrier. For this trouble he was bribed by a large amount of money. It was held that as he was acting illegally, he was bound to hand over his profit to the crown. Note however that if the principal knows about the agent’s secret profits and consents or does not object, then the agent is entitled to keep the profit. Duties of the Principal Remuneration Under a contractual relationship, the principal is bound to pay remuneration he has promised to pay the agent by agreement. Where the remuneration is expressly stated, the principal is bound to pay such remuneration once the agent has discharged his obligations under the contract. In case there is no express remuneration under the contract agreement, such remuneration may be implied into the contract agreement. The court will consider the language of the contract or any usage or custom of the business in determining whether such an implied term can be read into the contract agreement. It could also be shown that the agent was acting gratuitously such that the principal is not bound to pay him remuneration. See Taylor v. Brewer (1813) 1 M S 290. In that case, the agent agreed to accept such remuneration as should be deemed fit. The court held that the agent was not entitled to any remuneration under the agreement. This decision has been criticized by Powell in his book: Law of Agency. See also Bryant v. Flight (1839) 5 M W 14. In that case, the agent agreed to work for the principal in these terms: ‘The amount of payment I am to receive, I leave entirely to you. ’ The agent worked for 6 months and it was held that it was implied in the agreement that the agent was to get something for his work. Thus, he was able to recover a quantum meruit. Liability for remuneration arises only when it is earned i. e. it is only when the agent has been the direct or the efficient and effective a cause of the event upon which occurrence the principal has agreed to pay the agreed remuneration that liability to pay it arises. Therefore, if the agent has not been either direct or effective cause of that occurrence, then, the liability to pay the remuneration does not arise and the principal is not liable. In other words, the agent must have brought about the event leading to the payment of remuneration. The agent must show not only that he has achieved what he was employed to do, but also that his acts were essential to the bringing about of that result and not merely incidental to it irrespective of any express or implied agreement to pay remuneration. See the dictum of Eales CJ in Green v. Bartlett (1863) 14 CBNS 681: ‘If the relation of buyer and seller is really brought about by the act of the agent, he is entitled to commission although the actual sale has not been effected by him. ’ In that case, the agent was employed to sell a house at an auction but he failed to get a purchaser at the auction. A person X who was present at the auction asked the agent for the owner of the house and the agent told him. X then proceeded to enter into a contract or agreement directly with the principal. It was held that the agent was entitled to his remuneration. Note also that in order to find a legal claim for commission, there must not only be a causal relationship but also a contractual relationship between the introduction and ultimate transaction of sale. On this, see Toulman v. Millar (1887)58 LT 96. In this case, an agent was employed to find a tenant for a house. He actually found one but the tenant went ahead and bought the house. The agent asked the principal for remuneration but it was held that he was not entitled to any. Note that there may be no liability to pay remuneration even if there is an agreement to that effect and even if the agent has obtained what the principal wanted if any of the following occurs: If the transaction is illegal If the agent acts in breach of his duties e. g. where he has made secret profits. If the agent is guilty of negligence in the performance of his duty. If the agent is guilty of a misconduct. Indemnity This duty may be express or implied and the extent of liability for indemnity depends on the nature of the agreement between the principal and the agent and also on the ground of the business, the agent in order to make his principal liable in indemnity must have acted within the express, implies or usual authority. There is also no duty to indemnify an agent who acted unlawfully or who is in breach of his duty or who has acted negligently. Daron v. Fitzgerald (1840) vol. 6 B and NGS pg 201. THE SCOPE OF THE AGENT’S AUTHORITY The scope of agency authority determines the liability factor between principal and an agent in a contractual relationship. It also determines and delimits the authority of agency. By agent authority is meant the exact nature and the extent of the power possessed by the agent. This is the key feature of the agency because it involves the power of an agent to affect the principals laegal relation to the third party. This power flows from authority conferred by the principal or deemed to exist by law. It logically followed that, the principal is therefore bound by the Act of the agent, if what the agent has done was authorised by him. If the Act is not authorised by the principal, then of course, the principal is not bound. See the case of BISIONI Ltd V. NATIONAL BANK of NIG Ltd. There are four major categories, these are; Actual or Real relationship Apparent or ostensible authority (ESTOPPEL) Presumed authority (operation of the law) Authority by ratification. ACTUAL OR REAL AUTHORITY There is consent between principal and agent. This is so because there is consensus ad idem. It can be created in different ways : It may arise by parole (oral) It may arise by written or express form It may be created by deed (under seal) Where an agent is appointed to execute a deed, that agent must be appointed under seal. Therefore, the agency under actual or real authority may therefore e categorized under express authority, implied authority and usual or customary authority. When it is expressed, the terms are written or spelt out; it must be unambiguous, unequivocal and definite. An agency authority may also be implied from the position or conduct of the principal to the agent. An agency authority may also be usual in the sense that customs that are usual to the trade. Hence, authority may rise from such customs. OSTENSIBLE/APPARENT AUTHORITY This is predicated on estoppels. Estoppel simply means that where a party made it clear to the other party that a particular fact exists, he cannot make any other point to nullify the fact that he actually said so. Where the principal represents to a third party in a way that he had acted to the agent, the third party is made to believe that there is authority on the agent. Before a defense can be made three things must be made clear: There must be representation by the principal to the third party. The third party must have relied on the representation. The agent must have altered his own position i. e. he must have offered something. On the principle of apparent or ostensible authority i. e. authority by estoppel, see MABEL AYANKOYA 8 ORS V. AINA OLUKOYA ANR (1996) 2 SCNJ 292. The appellants were the 1st respondent’s customers while the second respondent was the 1st respondent’s clerk. Consequent upon the introduction of the second respondent to the appellant by the 1st respondent, the second respondent got money from the appellant but failed to supply beer to the appellant. The appellant sued the 1st and second respondent to recover their money. The Supreme Court held that if a person represents or permits it to be represented that another person has authority to act on his behalf, he will be bound in the same way as he would be if that other had in fact authority to act. This is based on the legal principles of estoppel and holding out. The court further held that the law always allows one man to authorize another to contract for him and bind him by an authorized contract. The legal effect is that he who does an act through another is deemed in law to do it himself. PRESUMED AUTHORITY This is the 3rd category, it can also be called authority by law like the apparent authority, and there is no consent on behalf of the principal for the agent to act for him but by what the law says. There are two categories of presumed authority: Agency of Necessity Agency of Co-habitation Agency by necessity occurs when the agent acts outside the authority of the principal if he is able to prove that he was necessitated to do so. Agency by co-habitation can be categorized into 3: Agency of a wife: in this type of situation, the husband will be liable only for goods that are necessaries and this would occur in a domestic establishment. Agency of a deserted wife—same thing applies. Agency of a mistress—same thing applies until co-habitation ceases. AGENCY BY RATIFICATION This is such that the principal was not aware that someone was acting on his behalf but at the time he knows, he accepts or ratifies. This is ratified into subsequent authority and antecedent authority. Certain elements must be present: The principal must be in existence as at the time the agent purportedly acted on his behalf. KELNER v. BAXTER The principal must be ascertained. The principal must be capable and competent. The principal must be aware of all material facts. The act must be of legal quality. It must be done within reasonable time. A major effect is that the moment the principal ratifies, the agent drops out of the relationship and the principal and 3rd party have known each other. A limitation is that it can’t take place where a particular interest has been directed. DISCLOSED PRINCIPAL AND UNDISCLOSED PRINCIPAL. A disclosed principal is the one whose existence had been revealed to the third party by the agent but whose exact identity remains unknown. The third party knows that the agent is contracting for someone who is unaware of the name of the principal. Whereas a named principal is the one whose name has been revealed by the agent to the third party and the 3rd party is aware that the agent is contracting as an agent and also knows the name of the person whom he was acting for. An undisclosed principal on the other hand is the one whose identity and existence is unknown to the third party. The third party does not know the identity of that principal neither does he knows that the agent was acting on behalf of another person. In the case of a named/disclosed principal, the third party knows that he is contracting with someone through the agent and not the agent personally whereas in the case of an undisclosed principal, the fact that the agent was acting for someone else is not revealed to the third party until after the contract had been made and it is only at this time that the third party discovers if he ever willed that an agency relationship capable of affecting his position is n existence. EFFECT OF AN AGENT ACTING FOR A DISCLOSED PRINCIPAL Contractual ability: The general rule is that where the agent has entered into a contract with the third party on behalf of a disclosed principal who actually exists and who had authorized such agent to make such a contract, the principal can sue and be sued by the third party on such contract. In this type of case/ there is a direct contractual relationship between the principal and the third party by the act of the agent. At the completion of the contract, the agent drops out of the picture and is not himself a party to the contract. The contract is between the principal and the third party. This position has the following implications in agency law: : The principal can sue the third party and the third party can also sue the principal. Please note that in this instance, the agent must have acted within the scope of his authority. An agent will be taking to be acting within the scope of authority if he has express, implied or real authority, he has apparent authority, he has presumed authority (where agency is created by necessity), if the agent’s unauthorized acts were validly ratified. If the agent was acting beyond his scope of authority i. e. actual, apparent or presumed, the principal cannot sue neither can he be sued upon such a contract. This is because the principal is not bound by an unauthorized act of the agent.