Law of Agency SS3 Commerce Lesson Note

CONTENT

• Definition of agency
• The function of an agent
• Parties to contract of agency
• Method of creating agency
• Duties of the agent
• Duties of the principal
• Rights of the agent and the principal

NOTES

An agency is a relationship which arises whenever one person (the agent) acts on behalf of another person (the principal) and has the power to affect the principal’s legal position about a third party.

In practice, the two most important functions of an agent are:

1. Making contracts on his principal’s behalf 
2. Disposing of his principal’s property

There are three parties to the contract of the agency

• Principal
• Agent
• Third-party (parties)

 Methods of Creation of Agency

1. By agreement or consent of the parties either express or implied
2. Necessity – by the operation of the law under the doctrine of agency of necessity.
3. By Ratification – retrospectively approving what someone has done on one’s behalf without prior authority.
4. By Estoppel – Where a person having information that someone has been parading himself as his agent without his authority and failing to stop him; will subsequently be prevented from denying that such a person is his bonafide agent. 

Duties of the Agent

1. Obedience: The agent must act strictly according to the principal’s instructions.
2. Care and skill: An agent professing a particular calling must show the degree of skill appropriate to his mandate. He must also exercise care in handling the business of his principal.
3. Personal performance: Duty of non-delegation; the agent must perform personally and cannot delegate.
4. Duty to Account: An agent must keep proper books of accounts on behalf of his principal. He must also render (present) this account to his principal at stated intervals.
5. The agent also must keep the principal’s property distinct from that of the agent.
6. Duty of good faith: An agent is not allowed to make a secret profit or receive a bribe.
7. Duty of Secrecy: An agent must keep his principal’s affairs secret
8. Full performance: The agent must perform fully according to the terms of the agreement.
9. An agent must communicate all material facts to his principal with reasonable diligence.

 EVALUATION

1. Who can appoint an agent?
2. Can a minor act as an agent?

 Duties of the Principal

1. Indemnity: The principal is expected to reimburse the agent for any expense  he incurs in the performance of his agency
2. Remuneration: The principal must pay the agent all commissions and remunerations due to him.
3. Performance: The principal also must perform fully according to the terms of the agreement.

NB:

• The duties of the agent are the rights of the principal
• The duties of the principal are the rights of the agent 

In addition to the above, the following right of the agent must be noted 

LIEN: An agent has the right to retain possession of the property of the principal as security for payment of a debt (e.g. his commission)

 Method of Termination of Agency

1. By agreement between the agent and the principal
2. Revocation of the agent’s authority by the principal
3. Renunciation of the agent’s authority by the agent himself
4. Full Performance – i.e. completion of the agent’s assignment
5. Death of either party
6. Insanity of either party
7. Bankruptcy of either party
8. Passage of time: Where an agent is appointed for a fixed period, the expiration of that period terminates his authority whether the agent has completed his assignment or not
9. Frustration: e.g. changes in the law, subsequent illegality, destruction of the subject matter of the agency etc

 EVALUATION

1. Give five examples of situations where the termination of agency can be ascribed to frustration.
2. List three classes of people that cannot appoint an agent.

 GENERAL EVALUATION QUESTIONS

1. List eight means of payment in business
2. Give five reasons for the protection of consumers
3. State five measures taken to protect consumers
4. What is a channel of distribution
5. Explain five advantages of home trade over foreign trade

READING ASSIGNMENT

• Comprehensive Commerce for SSS by J. U. Anyaele Page 474 – 481

WEEKEND ASSIGNMENT

1. Okeze contracted to sell TV sets to Ojo. Unknown to them, the sets were stolen in transit. This contract may be terminated on the grounds of (a) bankruptcy (b) fraud (c) breach of contract (d) frustration.
2. Q, acting as the agent of P, lawfully and reasonably incurs the amount of N850 as expenses. If Q comes to P for payment, this is an instance of P’s duty to (a) remunerate Q (b) repay Q (c) indemnify Q (d) settle Q
3. A bus driver operating between Lagos and Jos pledged the owner’s credit in Benin to have the engine repaired and the bill sent to the owner. This is a case of (a) del credere agency (b) agency by necessity (c) agency by ratification (d) agency by estoppel.
4. Which of the following must be present in an agency by agreement (a) intentions (b) will (c) consent (d) authority
5. An agent must not make any secret profit in the performance of his duties but can only be rewarded by his principal through (a) Remuneration and indemnity (b) payment of commission and salary (c) granting of business concession (d) forwarding of business links.

THEORY

1. List three ways by which an agency can be created
2. State four rights of the agent

  TYPES OF AGENTS

An agent could belong to one of the following classifications:

1. Universal Agent – An agent given unlimited or unrestricted power to enter into any type of business contract on behalf of the principal.
2. General Agent – An agent that has the authority to act in all matters relating to a particular business.
3. A Commissioned Agent – Buy and sell goods at competitive prices on behalf of the principal in return for a commission linked to sales figures posted. He can deduct his commission when remitting sales money to his principal and equally add his commission to the cost of goods bought on behalf of the principal.
4. Broker – A commercial agent who has the following features:

• Does not have possession of goods
• A commission agent
• He does not sell in his name
• His main job is to link his principal with potential customers
• He cannot pledge the goods
• He has no lien on the goods
• His commission is termed brokerage commission
• He can only sue in the principal’s name for the recovery of any amount due to him.
• The broker tends to specialise in a particular commodity e.g. brokers at the Stock Exchange.

1. Jobbers – Agents who buy from the principal and sell on their name and behalf. He has possession of the goods. He usually buys at one price and sells at a higher price to make a profit for himself. This profit is called the jobber’s turns e.g. jobbers dealing in shares at the Stock Exchange.
2. Factors – (Mercantile Agent) sells goods on behalf of his principal on a commission basis. He has possession of the goods. He can sell and also issue receipts in his name. He can fix and sell at prices he thinks best for the principal and may also give credit to a reasonable extent in his name. A factor can insure the goods in his possession because he has an insurable interest (i.e. he will suffer financial loss if the goods are damaged or destroyed). Factors can pledge the goods i.e. they can give a guarantee on the goods. They can also sue on the contract made by them and they have a lien (a legal claim on their principal’s goods for any outstanding claims). Factors receive a commission called factorage for their services.

EVALUATION 

Compare the features and functions of the following types of agents bringing out their

differences and similarities (a) Factors (b) Brokers (c) Del credere agents (d) Jobber

1. Auctioneers – An agent licensed to sell goods on auction to members of the public according to laid down instructions at public places. The auctioneer advertises and sells the goods based on two clauses which are:

1. Without Reserve – Where he sells the goods to the highest bidder during the auction irrespective of what the cost price is.
2. Subject to Reserve – The auctioneer cannot sell below the cost price or reserve price of the commodity no matter what the highest bid may be

 FEATURES OF AN AUCTIONEER

1. A licensed agent
2. Sells goods on auctions to members of the public places.
3. He advertises the goods
4. He is a commission agent
5. He may not have the goods
6. The auctioneer can act for the seller as well as the buyer 
7. He has implied authority to sell without a reserve price.

8. Forwarding and Clearing Agent: This is an agent who specialises in the delivery and receipt of goods at the docks or airports on behalf of the principal. His duties arise mainly because of the technical and complicated procedure involved in clearing goods at the seaports and airports. As a specialist on the job, he completes all the formalities and customs procedures in clearing the goods at the port. He takes possession of the goods and arranges for their delivery to the location specified by the principal. He is very prominent in international trade.
9. Del credere Agent – This is a commission agent who sells goods on behalf of his principal. He takes possession of the goods and sells them in his name. He accepts the responsibility for the collection of proceeds of sales made by him on credit. He guarantees full payment for any sales made and is therefore liable to pay his principal for the goods he sold if the buyer defaults in payment i.e. he bears any bad debt that may arise. As a result of his bearing this risk, he receives an additional commission known as del credere commission.
10. Manufacturer Representation: This is an agent that represents a local or foreign manufacturer in the distribution and sale of its products in a particular area or country. This agent serves as an appendage of the manufacturer in the area he is residing.

EVALUATION 

1. State five features of a factor (or mercantile Agent).
2. Distinguish between a general agent and a universal agent.

GENERAL EVALUATION QUESTIONS

1. Give five reasons why small-scale retail businesses may fail
2. List five instances where a manufacturer may decide to sell his goods directly to the consumer
3. State eight features of hawking
4. Explain five reasons why tariffs are imposed on imports
5. Explain five features of itinerant trading

READING ASSIGNMENT

1. Essential Commerce for SSS by O. Alonge pages 273 – 279
2. Comprehensive Commerce for SSS by J. U. Anyaele page 474 – 481

WEEKEND ASSIGNMENT

1. In the law of contract, the term “consensus ad idem” refers to (a) an Executory contract (b) an Executed contract (c) a Meeting of Minds (d) a Voidable contract.
2. A contract in which all parties to the contract have carried out their obligation is said to be terminated by (a) breach of contract (b) Frustration (c) Performance (d) Voluntary agreement
3. Nana Johnson the son of Mr. Ekindayo Johnson, found it expedient to act on behalf of the father though he had not received any prior authority” The above statement describes an agency created by (a) Necessity (b) Implication (c) Ratification (d) Estoppel.
4. An agent held responsible for non-payment of goods bought by the customer he introduced to his principal is called _____ agent (a) General (b) Sales (c) Del credere (d) Auctioneer.
5. The rules and regulations guiding the conduct of business transactions are known as ______ law (a) Civil (b) Commercial (c) Contract (d) Common.

THEORY

1. Who is an agent?
2. State four features of a factor or mercantile agent.