Law of Agency – SS3 Commerce Lesson Note (First Term)

Agency is a relationship in which one person (the agent) acts on behalf of another person (the principal) and can affect the principal’s legal position with a third party.

Behavioural objectives

1. Define agency and state the functions of an agent.
2. Name the parties to a contract of agency.
3. State the methods of creating and terminating an agency.
4. List the duties and rights of the agent and the principal, including the right of lien.
5. Describe the different types of agents and state their features.

What does an agent do?

An agent is a person who acts on behalf of a principal.

The two most important functions of an agent are:

1. Making contracts on his principal’s behalf.
2. Disposing of (selling or passing on) his principal’s property.

Who are the parties to a contract of agency?

There are three parties to a contract of agency: the principal, the agent and the third party.

• Principal: the person who appoints the agent and for whom the agent acts.
• Agent: the person appointed to act for the principal.
• Third party: the person (or persons) with whom the agent makes the contract for the principal.

How is an agency created?

An agency is created in four ways: by agreement, by necessity, by ratification and by estoppel.

• Agreement: the parties agree or consent, either expressly (stated) or by implication.
• Necessity: the law creates the agency under the doctrine of agency of necessity.
• Ratification: the principal approves, after the event, what someone did for him without prior authority.
• Estoppel: a person knows someone is presenting himself as his agent without authority and fails to stop him. He is later prevented from denying that the other is his bona fide (genuine) agent.

What are the duties of the agent?

The duties of an agent are the obligations he owes his principal under the agency.

• Obedience: the agent must act strictly according to the principal’s instructions.
• Care and skill: an agent professing a particular calling must show the skill suited to his mandate. He must also take care in handling the principal’s business.
• Personal performance: this is the duty of non-delegation. The agent must perform the work personally and cannot hand it to another.
• Duty to account: the agent must keep proper books of account for the principal. He must present them to the principal at stated intervals.
• Separate property: the agent must keep the principal’s property apart from his own.
• Good faith: the agent must not make a secret profit or receive a bribe.
• Secrecy: the agent must keep his principal’s affairs secret.
• Full performance: the agent must perform fully according to the terms of the agreement.
• Disclosure: the agent must tell the principal all material facts with reasonable diligence.

What are the duties of the principal?

The duties of the principal are the obligations he owes his agent.

• Indemnity: the principal reimburses the agent for any expense he incurs in carrying out the agency.
• Remuneration: the principal pays the agent all commissions and other payments due to him.
• Performance: the principal must also perform fully according to the terms of the agreement.

What are the rights of the agent and the principal?

The rights of each party follow from the duties of the other.

• Rights of the principal: these are the duties of the agent.
• Rights of the agent: these are the duties of the principal, plus the right of lien.

What is the right of lien?

Lien is the right to keep a principal’s property as security until a debt is paid.

• The agent may hold the principal’s goods until his commission is paid.
• It is an extra right the agent has beyond the duties of the principal.

How is an agency terminated?

An agency can end in nine ways.

• Agreement: the agent and the principal agree to end it.
• Revocation: the principal withdraws the agent’s authority.
• Renunciation: the agent gives up his authority himself.
• Full performance: the agent completes his assignment.
• Death: either party dies.
• Insanity: either party becomes insane.
• Bankruptcy: either party becomes bankrupt.
• Passage of time: where an agent is appointed for a fixed period, his authority ends when the period expires, whether or not the work is complete.
• Frustration: an event makes the agency impossible, for example a change in the law, later illegality or destruction of the subject matter.

What are the types of agents?

There are ten types of agents: universal, general, commissioned, broker, jobber, factor, auctioneer, forwarding and clearing, del credere and manufacturer representative.

1. Universal agent

• Has unlimited power to enter into any type of business contract for the principal.

2. General agent

• Has authority to act in all matters relating to a particular business.

3. Commissioned agent

• Buys and sells goods at competitive prices for the principal.
• Is paid a commission linked to the sales figures.
• Can deduct his commission when sending sales money to the principal.
• Can add his commission to the cost of goods he buys for the principal.

4. Broker

A broker is a commercial agent whose main job is to link his principal with potential customers.

• Does not have possession of the goods.
• Is a commission agent.
• Does not sell in his own name.
• Cannot pledge the goods.
• Has no lien on the goods.
• Earns a commission called brokerage.
• Can only sue in the principal’s name to recover any amount due to him.
• Tends to specialise in one commodity, for example brokers at the Stock Exchange.

5. Jobber

A jobber is an agent who buys from the principal and sells in his own name and on his own behalf.

• Has possession of the goods.
• Buys at one price and sells at a higher price.
• His profit is called the jobber’s turn.
• Example: jobbers dealing in shares at the Stock Exchange.

6. Factor (mercantile agent)

A factor is an agent who sells goods for his principal on a commission basis while holding the goods.

• Has possession of the goods.
• Can sell and issue receipts in his own name.
• Can fix the prices he thinks best for the principal.
• Can give credit to a reasonable extent in his own name.
• Can insure the goods, because he has an insurable interest (he suffers financial loss if they are damaged or destroyed).
• Can pledge the goods, that is, hand them over as security for a loan.
• Can sue on contracts he makes.
• Has a lien, a legal claim on the principal’s goods for any outstanding payment.
• Earns a commission called factorage.

7. Auctioneer

An auctioneer is an agent licensed to sell goods by auction to the public, in public places, according to laid down instructions.

He advertises and sells the goods under one of two clauses:

• Without reserve: he sells to the highest bidder, whatever the cost price is.
• Subject to reserve: he cannot sell below the reserve price, however high the best bid is.

What are the features of an auctioneer?

• A licensed agent.
• Sells goods at auctions to members of the public.
• Advertises the goods.
• Is a commission agent.
• May not have the goods in his possession.
• Can act for the seller as well as the buyer.
• Has implied authority to sell without a reserve price.

8. Forwarding and clearing agent

A forwarding and clearing agent specialises in delivering and receiving goods at the docks or airports for the principal.

• His work arises from the technical procedure of clearing goods at seaports and airports.
• Completes all formalities and customs procedures at the port.
• Takes possession of the goods.
• Arranges delivery to the place the principal names.
• Is very prominent in international trade.

9. Del credere agent

A del credere agent is a commission agent who guarantees payment for the credit sales he makes.

• Takes possession of the goods and sells in his own name.
• Is responsible for collecting the proceeds of credit sales.
• Must pay the principal if the buyer defaults, so he bears any bad debt.
• Earns an extra commission, called del credere commission, for taking this risk.

10. Manufacturer representative

A manufacturer representative is an agent who represents a local or foreign manufacturer in distributing and selling its products in a particular area or country.

• Serves as an extension of the manufacturer in the area where he lives.

How do brokers, jobbers, factors and del credere agents differ?

The four agents differ mainly in whether they hold the goods, sell in their own name and how they are paid.

Evaluation

1. Define agency and state the two main functions of an agent.
2. List five duties of an agent.
3. Q, acting as the agent of P, reasonably spends ₦850 on P’s business. Name the duty of P that requires him to repay Q.
4. A bus driver on the Lagos to Jos route pledged the owner’s credit in Benin to repair the engine, and the bill was sent to the owner. Name the type of agency created.
5. State five features of a factor (mercantile agent).

Assignment

Write a short note on the law of agency. Include the meaning of agency, three ways an agency can be created and four rights of the agent.

Further reading:

• Comprehensive Commerce for SSS by J. U. Anyaele, pages 474 to 481
• Essential Commerce for SSS by O. Alonge, pages 273 to 279