LAW OF AGENCY

Agents are appointed because of their technical skills, knowledge and experience in certain
fields. The owner of a house may have difficulties getting a tenant without the help of an agent.
Distance is also a known factor which may necessitate a principal to appoint an agent to act for
him in business transactions with third parties.

DEFINITION

Agency is a CONSENSUAL RELATIONSHIP existing between two parties whereby one party;
the PRINCIPAL EXPRESSLY or IMPLIEDLY AUTHORIZES another party; the AGENT to
act on his behalf in specified dealings with third parties.

Exercise: Students to identify and note examples of agencies that exist around them using the
definition above as a guide.

One of the functions of an Agent is to bring the Principal and third party together in a contractual
relationship in order to create direct legal obligations between them.

An agency may create:

1. Bi-partite relationship i.e. 2 partied (Principal + Third party)

2. Tri-partite relationship i.e. 3 partied (Principal+ Agent + Third party)

Privity of contract applies to agency.

ESSENTIAL ELEMENTS OF AN AGENCY RELATIONSHIP

1. CAPACITY
a) TO BE A PRINCIPAL: what a person cannot do by himself, he cannot do by an agent.
For example, infants and lunatics cannot be Principals, however an infant can contract an
agent only for the purpose of purchasing necessaries on his behalf.
b) TO BE AN AGENT: only persons of sound mind can be agents. An infant may act as an
agent if he has sufficient understanding of the act required of him.

2. PARTIES

There must be at least 2 parties creating the agency; principal and agent.

3. INTENTION TO CREATE LEGAL RELATIONS

Parties creating an agency must intend for their relationship to be regulated and bound by
law.
 MODES OF CREATING AGENCY

1. Express/implied agreement
2. Doctrine of Estopel : This is the principle of law which prevents a person from
asserting a reversal of what he had previously represented if a third party has acted on
such representation.
3. Necessity: This is presumed by law in cases of emergency where the property or
interest of another person is in imminent danger of being damaged.

Conditions For Creation Of Agency By Necessity:

a. There must be an imminent or real danger to the property of another. Eg. Perishable
goods about to spoil.
b. Impossibility of communicating with the principal in order to obtain instructions from
him.
c. It must be a bona fide action in the principal’s interest.

4. Ratification: This is where the principal subsequently approves of or adopts an act

that was performed on his behalf by an agent even though he had lacked the authority
to perform the act at the time the act was carried out. Ratification may be oral or
written.

Conditions For Ratification

a. There must be an identifiable principal in existence

b. The existing principal must have the contractual capacity at the material time the
agent entered the contract on his behalf
c. The time of ratification must be within a reasonable period to avoid jeopardizing the
interest of third parties.
d. The principal must have knowledge of all material facts at the time of ratification.
Ratification dates to the time the transaction was made, not the time of ratification.

RELATIONSHIP BETWEEN A PRINCIPAL AND AGENT

Duties of an Agent to his principal

These duties are derived from two sources;

1. Contract of Agency

2. Principle of Equity which creates a standard of care for managing the principal’s business and
a fiduciary relationship between both parties which imposes the duties of trust and mutual
confidence. The agent has the duty to
1. Obey instructions. This moral/legal duty is limited by circumstances where;

a. The instruction is unlawful

b. The agent might be exposed to personal injury

c. The agent’s professional ethics is breached.

2. To act in good faith and honesty

3. To exercise care and skill as might be reasonably expected of him. He has no need to perform
beyond the standard of a reasonable man in his position.

4. To not have conflicting self-interest with the principal in carrying out his duties. Eg it is wrong
for an agent to sell his own property to a principal who contracted him to purchase a property on
his behalf.

5.To not make secret profit. An agent should not receive any money apart from his agreed
remuneration without the principal’s consent.

6.To keep and render proper records.

7.To keep principal’s money and other property separated from his own

8.To act personally and not delegate his duties (delegatus non potest delegare)

Exceptions to delegatus non potest delegare:

a. Express instruction from principal to delegate.

b. implied conduct or utterance by the principal authorizing the agent to appoint a sub-agent.

c where delegation becomes necessary because of the agent’s function or volume of work.

d where there are unforeseen circumstances that make it necessary for the agent to delegate his
authority.

9.Confidentiality

PRINCIPAL’S REMEDIES FOR AGENT’S BREACH OF DUTY

1. Termination of agency; notice must be given to the agent

2. Institution of court proceedings against the agent for breach of contract
3. Rescission of contracts with third parties
4. Sue for accounts in cases of secret profits
5. Sue in torts in cases of negligence, conversion, etc.
 6. Cause criminal proceedings to be instituted against the agent for stealing

AGENT’S RIGHTS AGAINST PRINCIPAL

1. Remuneration/Compensation: In an agency contract, remuneration is the consideration

paid by the principal for the services of the agent. Exception is where the agency is a
gratuitous one. In this case, the agent is entitled only to refund for expenses incurred/
indemnity.
2. Right to indemnity: the agent has the right to be indemnified for all liabilities incurred by
him in the performance of his lawful instruction. However, the agent is only entitled to
this right if he acts within the scope of his lawful instruction. This right covers only
expenses incurred by him in the cause of his authority. He forfeits this right if he
performs an illegal or criminal right or if the contract is terminated, remuneration ceases.
He also loses his right to remuneration if he is in breach of his fiducial duties.
3. Right to a Lien: He has a right to hold on to the principal’s property when he is being
owed remuneration. To exercise this right however, the property in question must have
come into the possession of the principal during the agency. It is also important that the
agency agreement provides for the exercise of a line by the agent.

RELATIONSHIP OF PRINCIPAL AND AGENT WITH THIRD PARTIES:

A tripartite agreement is dependent on whether the principal is disclosed or undisclosed. If it is

disclosed, the agent’s role comes to an end the moment he contracts a third party, subsequently,
all contracts may be between the third party and the principal. The agent can however be sued if
he executes a deed in his personal name or if the contract is on behalf of a non-existent principal.
That is, he is the principal but holding himself out as an agent.

An undisclosed principal cannot sue where the agreement with the agent expressly provides that
the agent be wholly and personally liable.

TERMINATION OF AGENCY

An agency can be terminated by;

1. The act of the parties through mutual agreement where the contract between the party
provides that the relationship will end after a specified duration or where the purpose for
which the agency was created has being fulfilled.
2. Unilateral Termination: This is done at the instance of either party. When it is done by
the principal, it is revocation of agency, when it is done by the agent it is renunciation of
agency. In this instance, a notice must be given.
3. By Operation of Law: Unforeseen circumstances may arise leading t termination e.g.
Frustration, where it is impossible to perform the contract, destruction of subject matter,
changes in law or government policies, etc.
 4. Death/bankruptcy/insanity of either parties.
5. Cessation of agency of necessity/ estopel. When conditions that led to its creation comes
to an end.

Effects of termination

Termination means the agent ceases to act on behalf of the principal. However, rights and
obligations that have accrued can be enforced by action in law.

Irrevocable agency

Where the agent’s authority is coupled with an interest, the agency is considered irrevocable.
This usually occurs if the agency is created for the purpose of giving the agent security over the
subject matter as valuable consideration.