AGENCY

An agency is a special contractual agreement which arises when one person called an agent is appointed and authorized to act as a representative of another called the

principle in making of a contract, institution of an action, conveyance of immovable or other property or in the exercise of any proprietary right of the principle under and by virtue of a power of attorney.[1]

Abbott, Pendlebury and Wardman in their book Business Law define an agent as a person who is used to effect a contract between his principal and a third party.[2] He is employed to carry out business on behalf of another person who employs him to do so known as a principal.

An agency contract a fiduciary 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.[3]  This means that one person, that is, the agent agrees to do something for another who is the principle subject to the control of the other party and the other party (the principle) also consents to the agreement.

Kinds of agents

Agents are divided into three categories. The first category is that of a special agent. A special agent is one who is employed to do some particular act or represent his principal in some particular transaction for example an agent employed to sell a house.[4] A special agent is mainly employed to perform a particular act and is therefore not authorized or mandated to perform a particular act that he was not told to do. If an agent does anything outside its authority, the principal will not be bound by that act. Third parties are not entitled to assume that the special agent has unlimited powers to do as he pleases and so he takes reasonable steps and inquire as to the extent of his authority before entering into the contract. The authority of a special agent is limited to the performance of a specific act in such a way that as soon as the act is performed, that authority too will come to an end. Some of the examples of special agents include brokers, factors and auctioneers.

Another category is a general agent. A general agent is one who is employed by the principle to perform all the acts connected with another person’s particular business or assignment.[5] He or she is employed mainly to do all acts connected with a particular business or employment such as a manager of a firm. A general agent has extensive powers to act for the principle in all matters and to do anything and everything within the scope of his authority and to undertake all transactions incidental to the particular trade or profession. Therefore, everything that a general agent does is binding upon the principal since he is doing everything that falls within the scope of that business even where he is doing an act that was not authorized by the principal.

Lastly, a universal agent is another category of agents. This is one whose authority is unlimited whereby he has the authority to do all the acts that a principle can lawfully do and also delegate.[6] He also has the authority to carry out any business transactions on behalf of his principal.

Depending on the nature of the job they are doing, agents are further classified into two categories which are the mercantile agents and non-mercantile agents.

A mercantile agent is a person who in the ordinary course of his or her business, has authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods or raise money on the security of goods.[7] Mercantile agents include the following;

Factors. Factors are mercantile agents to whom goods are entrusted. They are people appointed to sell goods which are in their possession or to buy goods for their principle. According to the Black’s Law Dictionary, a factor is a commercial agent employed by a principle to sell merchandise consigned to him for that purpose, for and on behalf of the principle, but usually in his own name, being entrusted with the possession and control of the goods, and being remunerated by a commission.[8]

A factor is entrusted with possession of goods and he also exercises discretionary powers when performing what he has been employed to do such as in the sale of goods. He can therefore act that is to say sell the goods in his name but only upon such terms as he thinks fit which includes pledging the goods as well. A factor binds his principle in the sale or pledging of goods. This occurs if the principle provided the agent with some indicia or property or apparent authority with the power to deal with the goods as the owner or pledge them. In Folkes v King[9] the plaintiff had entrusted his car to a mercantile agent for sale at a stated price and not below it. The agent sold the car to a third party who was a bonafide purchaser below the reserve price and misappropriated the proceeds. The bonafide purchaser also resold the car to the defendant whom the plaintiff sued in order to have the car returned or have the value for it. It was held that the defendant had good title to the car because the plaintiff had consented to the agent having possession of the car and therefore it was immaterial whether he committed a larceny by a trick or not.

Another type of mercantile agent is a broker. A broker is an agent employed to make contracts for the purchase of goods.[10] A broker acts as a middleman between the principal and the third party whereby his work is to look for market for the purchase of the principle’s goods. A broker was defined by Cleasby B in the case of Fairlie v Fenton[11] as one who makes a bargain for another and receives a commission for so doing. A broker is a mere negotiator between the other parties that is between his principal and the third party with whom business is being made. When a broker is employed to buy or sell goods, he is not entrusted with the custody or possession of them and is not authorized to buy or sell them in his own name but in the name of those who employ him. He therefore has no authority to recover payment for the property sold by him.

An auctioneer is also another type of agent. An auctioneer is a person legally authorized to sell goods or lands of other persons at public auction for a commission or fee,[12] he is the property owner’s agent up to the moment the when a purchaser’s bid is accepted.[13] An auctioneer has implied authority to sell goods without a reserve price and even if he sells below the reserve price specified by the principal, the contract will be binding. If however, he declares that the sale is subject to a reserve, then a sale below the reserve price will not be binding on the principal.

A del credere is also another type of mercantile agent. He is one who guarantees his principal that third with whom he enters into contracts on behalf of the principal shall perform their financial obligations in consideration of an extra commission.[14] He stands in not only as an agent but also as surety for the third party such that if the third party fails to pay or purchase the goods, he himself will be liable to the principal.

A commission is also a type of mercantile agent. This is a mercantile agent who buys or sells goods for his principal on the best possible terms in his own name and who receives commission for his work.[15] He is independent of the principal and therefore has the right to conduct the transaction as he sees fit when dealing with certain goods.

b) Different ways in which an agency relationship may come into existence.

An agency relationship may come into existence through an agency by necessity. It arises where there is some pressing need for action to safeguard the interests of another and so it is inferred that the person acted as an agent to safeguard the interests of a principle.[16] In the case of Gwilliam v Twist[17], it was held that an agency by necessity only arises or can only be formed where the four criteria are met, that is, where the agent’s actions are necessary, where it’s not reasonably practicable for the agent to communicate with the principal to seek instructions, where the agent’s actions are performed bonafide in the principal’s interests and where the agent’s actions are reasonable and prudent. This means that an agent can only act on behalf of the principal if it is deemed necessary but has however failed to inform the principal about the prevailing circumstances.

An agency relationship may also come into existence through an agency by estoppel. The contractual relationship of principal and agent may also be presumed or created by apparent authority or from their conduct[18] for example where a person conducts himself in such a way as to lead a third party to believe that the other person is his agent. In such a case, the agent is given apparent authority and therefore the principle is estopped from denying that an agency relationship exists. Lord Cranworth in Pole v Leask[19] held that no one can become the agent of another person except by the will of that person whereby that will may be manifested in writing or orally or simply by placing another in a situation in which according to the ordinary rules of law or ordinary usages of mankind, that the other is understood to represent and act for the person who has so placed.

Another way of creating an agency relationship is through an agency by ratification. Section 130(1) of the Contracts Act 2010 provides that a person on whose behalf the act is done but had no knowledge of or had not authorized the act done by one person of another may ratify or disown the act. Agency by ratification is the existence of power created in one not a principle by one not an agent but who purports to be one.[20] Normally, a relationship of agency is created before the agent engages in any acts on behalf of the principal. An agency relationship can however be created retrospectively by ratification as was held in the case of Bolton Partners v Lambert[21] where an offer was made by the defendant to a third party who was acting as an agent of the plaintiffs but was not authorized to make any contract for sale.

It is also very important to note that for a principal to be able to ratify an act, he must have been in existence at the time when the agent purported to act as an agent. This means that ratification will not occur where a purported agent enters into a contract on behalf of a principal who will exist in the future and who will ratify his actions. In Kelner v Baxter[22] where the plaintiff sold wine to the defendant who purported to act as an agent for a company which was to be formed, it was held that the company could not ratify since it was not in existence when the contract was made.

 

2 a) Different rights and duties of the agent and principle under an agency relationship.

The duties of an agent include the following;

An agent has a duty to carry out his principle’s duties unless he is gratuitous. Section 145(1) of the Contracts Act 2010 is to the effect that an agent shall follow the directions given by the principles in custom in which they call out their business regardless of his absence. A paid agent is under a duty to do any act required by the contract of agency apart from an act that is illegal or void and any loss suffered by the principle because of failure to fulfil this duty either through non-performance or defective performance is recoverable from the agent by the principal. In Turnip v Bilton[23] where the broker failed to effect the insurance of the principal’s ship, it was held that the principal could sue the agent for breach of contract when the uninsured ship was lost. Section 160 (1) is to the effect that the principal and agent shall be liable for the acts done within the course of a duty. It is to that effect that subsection (2) outlays that the principal shall not be liable for the act done out of the authorized duty.

An agent must exercise reasonable care and skills in performance of his duties. An agent is required to display reasonable care in carrying out his instructions and also where appropriate, such skill as may reasonably be expected from a member of his profession. Should he fail to do so, he will be liable for any consequential loss that his principal suffers. Hedley Byrne v Heller[24] laid down the ground under which one has to prove for reasonable care, he relied on the special skill and judgment of the defendant. The defendant knew or ought to have known of this reliance and thus accepted responsibility for making the statement carefully.

An agent also has a carry out the principal’s instructions. The primary objective imposed on an agent it to act strictly in accordance with the instructions of his principal in so far as they are lawful and reasonable. Where the agent is a commercial agent, he is under a duty to comply with reasonable instructions given to him by the principal.[25] In Barton, Armstrong & Co. v Godfray,[26] it was held that has no discretion to disobey his principal’s instructions even if he honestly and reasonably believes disobedience to be his principal’s best interest. Therefore, if the agent carries out his work carries out his principal’s instructions, he will not be liable for the loss suffered.

An agent owes fiduciary duties to principal. This means that trust and confidence should exist between the principal and his agent. This is mainly because an agent has the power to affect the principal’s legal position. One of the fiduciary duties of an agent is to act in good faith and for the benefit of his principal. The agent must not let his interests conflict with his duty to his principal and it is no defense that the contract was made without intent to defend.[27] Lord Cairns in Parker v McKenna[28] stated that ‘no man can in…acting as an agent, be allowed to put himself into a position in which his interest and his duty will be in conflict.’ Where an agent’s own interests come into conflict with those of his principle, he must make a full disclosure to the principle of all the relevant facts so that the principle may decide whether to continue with the transaction.[29] The rationale for this is to prevent an agent in the absence of disclosure from selling his own property to the principal as was the case in Armstrong v Jackson[30], the plaintiff employed the defendant, a stock broker to buy him shares for him. In fact the defendant sold his own shares to the plaintiff. It was held that the plaintiff could rescind the contract because there was conflict of interest.

Another fiduciary duty is that the agent must not make secret profits and bribes. This means that an agent must not use his position to secure a benefit for himself. Where he or she, in the course of the agency and without his principal’s knowledge and consent makes a profit for himself out of his position or his principal’s property or out of information with which he is entitled by virtue of his agency, he must account for this profit of the principal. In the case of Lucifero v Castel[31] an agent appointed to purchase a yacht for his principal bought the yacht himself and then sold it to his principal at a profit and the principal was unaware that he was buying the agents own property. The agent had to pay his profit to the principal. And where an agent receives a secret profit from a third party

If an agent makes profits secretly, he must pay it to the principal even if the principal could not have earned the profit himself. According to the case of Reading v Attorney General[32], a sergeant in the British Army in Egypt agreed to accompany Lorries carrying illicit spirits. He was paid £20000 so that his presence in uniform would ensure that the vehicles were not searched. It was held that as he made his profit through the use of his position, he had to account to the crown as his employer. The Sergeant was not strictly an agent, but was held to have a fiduciary relationship with his employer similar to a principal agent relationship.

The rights of an agent include the following;

Right to payment. An agent is entitled to be paid for his services even where an express agreement providing for that is not in existence. However, an agent will be paid only if has performed, precisely and completely, the obligations in the agency agreement, unless the contract states otherwise. If he does less than he is contractually required to do, he may not be paid unless the contract provides for part-performance. The right of an agent to be paid depends upon the type of payment provide for, or implied into in the agreement with two types of payment identifiable, that is remuneration and commission.

The right to reimbursement and indemnity. An agent who suffered loss for example incurred expenses or liabilities in the course of carrying out authorized actions for his principal is entitled to be reimbursed or indemnified by the principal unless the contract provides otherwise. It was held in Barron v Fitzgerald[33] He will however not be entitled to either reimbursement or indemnity if he acts outside his actual authority or if loss is as a result of his negligence, default or breach of duty.

The right to remuneration and commission. Payment by remuneration occurs where the agent is to be paid, irrespective of whether he enters into a transaction on behalf of the principle.[34] If the term is express and provides the amount of remuneration, the agent will receive that amount. However, an agent is not entitled to remuneration where he is guilty of misconduct during course of his agency.[35] In Way v Latilla[36] that payment by commission occurs where the agent is to be paid only if he complies fully and precisely with the requirements of the agency agreement.[37] If the agent fails to comply fully and precisely with these requirement, he will not be entitled to the commission.

The right to lien.[38] An agent will have a lien over any goods belonging to the principal that are in his lawful possession where he is entitled to payment, reimbursement or indemnity and his principal refuses to pay, reimburse or indemnify him.[39] He can retain possession of the goods until he is paid or indemnified, however, he cannot dispose of the goods. In the case of Wolstenholm v Sheffield Union Banking Co[40] it was held that no right of lien arises where it is inconsistent with or is excluded by the terms of the agency agreement.

The duties of a principal include the following;

A principal has a duty to pay the agent the commission or any other type of payment he is entitled to. If nothing has been expressly agreed the agent is entitled to what is customary in the particular business or in the absence of customs, to reasonable remuneration. The exact point in time at which the right to commission arises depends on the terms of the contract between the principal and the agent. This has given rise to difficulty, particularly in cases concerning estate agents as seen in the case of Luxor (EastBourne) v Cooper[41], the contract provided that the vendor of land should pay the estate agent his commission on completion of sale. A prospective purchaser was introduced by the agent. He was ready, willing and able to buy, but the sale did not take place because the owner refused to deal with him. It was held that the agent was not entitled to the commission. This implied that the agent gets his commission from the sales.

Contrasting the case of Scheggia v Gradwell[42], a similar contract provided that the vendor should pay commission as soon as any person introduced by enters into a legally binding contract to purchase. It was held that an agent was entitled to his commission when the purchaser signed a binding contract although the vendor later rescinded the contract because of the purchaser’s breach.

He also has a duty to indemnify the agent for losses and liabilities incurred by him in the course of the agency.[43] This duty was established in the case of Adamson v Jarvis[44] where an auctioneer sold goods on behalf of his principal being unaware that the principal had no right to sell. The auctioneer was held liable to the true owner in conversion, but was entitled to an indemnity from the principal. Furthermore, it has been held that an agent may be indemnified when he makes a payment on behalf of his principal which is not legally enforceable by the third party, but which is made as a result of some moral or social pressure. This cattails to the general rule that “He who acts through an agent acts through himself”. This is because whatever is done by the agent is for the benefit of the business. Also, in Read v Anderson[45], an agent was employed to bet on a horse. The horse lost and the agent paid the bet. It was held that he was entitled to the indemnity from the principal since if he had not paid he would have been recorded as a defaulter.

In conclusion, a breach of duty by the agent may result in the agent losing his right to remuneration but this will not be the case if the right to remuneration accrued before the principal exercised his right to terminate the contract of breach. This was exhausted in the case of Robinson Scammel v Ansell[46], where the agents claimed their fee and then clients refused to pay. It was held that the right of remuneration accrued before the breach. The estate agents were therefore awarded their commission.

Just like an agent, a principal is also entitled to some rights that accrue to him and they include;

A principal has a right to expect duty of care from the agent.[47] When an agent is employed by the principal, he is given certain instructions that he has to follow in the performance of his duties. The agent has to therefore perform his duties following these instructions with utmost reasonable care even where the agent is performing a gratuitous work. This was upheld in the case of Chaudry v Prabhakar[48] where the claimant (principal) sued the defendant (an agent) for selecting a car that had already been involved in an accident before without ascertaining whether it indeed was true since she was an amateur enthusiast in motorcars.

A principal has a right to repudiate a transaction that an agent has conducted without his (the principal’s) consent.[49] This happens when an agent deals with the business on his or her own accord without obtaining the consent of the principal. The principal will therefore not be held liable if repudiates that contract since he didn’t authorize it.

A principal also has a right to access accounts of an agent.[50] This goes hand in hand with section 150 which grants a principal a right to benefit from the transactions that conducted or accrued by the agent without the knowledge or consent of the principal. An agent while performing his duties may incur secret profits especially from the information given to him by the principal and also through bribes from third parties that he is conducting business with, he therefore has let the principal all about these transactions that are happening without his knowledge as he is entitled.

A principal also has a approve, appoint or disapprove any sub-agent that is appointed by his agent.[51] An agent has the discretion to select other agents to help him the performance of his principal’s duties. However, before giving them permission to work, he has to take them to the principal for approve. Failure to do so will not make the principal liable for any consequential loss arising out of negligence of the sub-agent.

b) Different ways in which an agency relationship may cease to exist or come to an end.

According to the section 135 of the Contracts Act 2010, an agency relationship may cease to exist or come to an end in different ways such as where the principle revokes his or her authority, an agent renounces the business of the agency, the business of the agency is completed, either party dies or becomes of unsound mind, a principle is declared insolvent under the law, both parties agree to terminate it or where the purpose of the agency is frustrated.

However all these ways are categorized into three, that is, by the act of the parties where the parties themselves do something that brings the agency relationship to an end and by the operation of the law where agency relationship ends not as a result of the fault of either parties but due to unforeseen circumstances such as death of either the principle or agent.[52]

An agency relationship can cease to exist by the operation of the law in the following ways;

Through the death of a principle or an agent. An agency relationship ceases to exist when either the principle or agent dies. This is because a person cannot act on behalf of a non-existent person. An agent’s authority is a power that emanates continuously from his principal but when the principle ceases to exist, his power to do the act also comes to an end. Agents can only act in the name of their principle, therefore if the principle dies, he cannot act in the name of a person who doesn’t exist. Laibuta connotes that there cannot be such a thing as an agent without a principle as there cannot be a wife without a husband.[53]

According to common law, the death of a principle revokes the power as well as the authority of the agent in all cases whether notice has been given or not. This was established in the case of Blades v Free[54] where Bayley J held that the power of a married woman to bind the estate of her deceased husband for necessaries is terminated by the death of the husband, even though both the widow and the tradesman who provided the necessaries were ignorant about his death. Section 143 (a) of the Contracts Act 2010 provides that an agent is to take all reasonable steps to protect and preserve the interests entrusted to him or her by the principle upon the principle’s death. When an agent dies, the relationship of agency also comes to an end however, that relationship cannot be passed onto his heirs. But, where the relationship is coupled with interest that is to say that the where the agent dies with interest in the subject matter, that interest does not terminate upon the agent’s death, it passes on to his personal representatives.[55]

An agency may also come to an end through operation of the law where either party becomes of unsound mind.[56] An agency comes to an end when the principal or the agent becomes insane. When the principal becomes insane the agency terminates only when the fact of principal's insanity is known to the agent. Therefore, if the agent, in ignorance of principal's insanity enters into a contract with a third party who also does not know the principal's insanity, the contract is binding. In Drew v Nunn[57], it was held that where the principle becomes insane, the agent continues to have apparent authority and so he can contractually bind the principle to any third party who was not aware of his insanity.

Section 142 (b)[58] provides that an agent must take reasonable steps to protect and preserve the interests entrusted to him or her upon the principle becoming of unsound mind. Similarly, an agency ceases to exist at insanity of the agent. It terminates as soon as the agent becomes insane. The main object behind agency is to appoint such person as an agent who may be competent to do the principal's act. Therefore, when the agent becomes insane, he would, obviously become unfit for doing the required job and thus, further continuation of agency would defeat the basic purpose of agency.

An agency relationship may cease to exist where the principle is adjudicated an insolvent under the law.[59] This means that the principle has become bankrupt and thus can’t perform his obligations such as paying commission to the agent and also purchasing goods as the agent will not have any work to do. In the case of Elliot v Turquand[60] it was held that when the principle is declared bankrupt, the agency relationship is automatically terminated. However, the bankruptcy of an agent does not bring the agency relationship to an end unless his bankruptcy prevents him from acting as an agent or renders him unfit to perform his duties as per the case of McCall v Australian Meat Co. Ltd[61].

An agency relationship may cease through operation of the law where the purpose of the agency is frustrated.[62] Frustration occurs where an unforeseen circumstance such where the subject-matter is destroyed renders performance of an obligation in the contract impossible. Where the subject-matter of the agency is destroyed, the relationship ceases to exist for example if a house or car that an agent has been employed to sell gets destroyed by fire, it will be impossible for the agent to carry out that act and therefore the relationship between him and the principle will come to an end.

An agency relationship may cease to exist by the act of the parties in the following ways;

Where there is mutual consent between the parties to end the relationship that exists between them as principal and agent.[63] Since the parties are at liberty to make any contract they please, they are also at liberty to unmake any contract that exists between them. Where the parties agree to terminate their contract of agency, their relationship will come to an end. However, the termination of the agency by mutual consent should not prejudice third party's interest. That is, the contractual rights of the third party with whom the agent has contracted cannot be impaired by such termination. The third party is entitled to sue the principal irrespective of the fact that the agency has been terminated.

Through the act of the parties, an agency may come to an end where the principle revokes his or her authority. The agency relationship is created by an expression of the will of the principal but if he feels he no longer wants to continue or expresses his unwillingness to continue with the contract, the principle may terminate the contractual relationship existing between them by revoking the authority he had given to the agent.[64] However, the principle is only authorized to revoke the authority at any time before it’s exercised by the agent.[65] In Bailey & Anor v Angove’s PTY Ltd[66] Lord Sumption held that the authority of D & D, an agent to Angove’s in collecting the unpaid sums from customers, had been revoked because it is well established that the authority of an agent may be revoked by the principle at any time even where it is agreed that that authority is irrevocable.

The principal cannot, therefore, be compelled to take services of agent he feels does not want such as one who has turned disloyal. The revocation equally applies where an agency is created for a fixed period. The best mode for revocation of his authority by the principal is by giving a reasonable notice to the agent. Notice must be given so as to give sufficient time to agent to safeguard his interests. The revocation may be express or implied. An implied revocation can be inferred from conduct of the principal.

An agency relationship may also cease to exist where the agent renounces the business of agency. The object behind giving such power to the agent is to protect the agent from acting against his will. However, where an agency is created for a definite period or accomplishment of a particular object, its renouncement by the agent will make the agent liable to compensate the principal for any loss resulting from such renouncement. But, where the agency is not to continue for a fixed period, the agent has right renunciate the employment at any time by giving reasonable notice. It may be made expressly or impliedly. renunciation may be affected merely by the abandonment of business of the agency.