MEANING OF AGENCY
CONTENTS
1.0 Introduction
2.0 Objectives
- Main Content
- Meaning of Agency
- The Origin of Agency
- Theories of Agency
- The Power Liability Theory
- The Consent Theory
- The Qualified Consent Theory
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
INTRODUCTION
The law of agency is an essential part of commercial law because companies can only conduct business through agents. The function of the law of agency is to enable agents to bring commercial parties into contractual relations in such a way as to render the parties, not the agents, liable on, and able to enforce, the contract.
The principal, on whose behalf the agent bargains, must be able to place complete confidence in the agent. This has led the law of agency to make the agent a fiduciary.
This imposes strict obligations. However, there are interests other than the protection of the principal against misuse of power by the agent, the protection of the third party with whom the agent has dealt, the protection of the agent against an y liability incurred on behalf of the principal, and the rights an agent may have against the principal.
OBJECTIVES
The main objective of this unit is to define the concept of agency as an essential part of commercial law. At the end of this unit the learner understand the meaning, origin and theory of agency.
Main Content
Meaning of Agency
Every day, in various parts of the world, there are persons acting for and on behalf of others, in different capacities and under different circumstances. During one’s business career or private life, one may be involved in the selling of goods or services to the general public. As a customer, one may have to be involved with persons representing others. The question may therefore arise as to whether all such representatives are necessarily agents of the person they claim to represent. A person may be a representative of another or a dealer in the products manufactured by that other person and may in consequence attach to himself the title of ‘agent’.
The issue is, when can it be said that an agency relationship has come to existence?. These and other problems have made it difficult to arrive at what one might consider as a concise definition of the term ‘agent’ or ‘agency’.
In the Oxford Companion Law, the term agency is defined as:
“The relationship between one person, the agent, having authority to act, and having consented to act on behalf of another, the principal, in contractual relations with a third party. The term is also used more widely as one acting in the interest of another”.
In the same vein, the American Restatement on Law of Agency describes the term as:
“………. a term which in its broadest sense includes every relationship in which one acts for or represents another by his authority but in the law of principal and agent, the term signifies the fiduciary relations which result from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and consented by the other so to act”.
In the English case of The Quenn v. Kane (1901)1 Q.B 472, Alverstine LCJ defined an agent as:
“any person who happens to act on behalf of another”.
In the Nigerian case of James v. Midmotors (Nig) Ltd. (1978)11-12 SC. 21 the Supreme Court, considering the phenomenon in relation to the definition of agency observed as follows:
“……. it necessary …….. to explain the term agency.. In law the word agency is used to connote the relationship which exists when one person has an authority or capacity to create legal relations between a person occupying the position of principal and third party, an d the relation also arises when one person called the agent has the authority to act on behalf of another called the principal and consents (expressly or by implication) so to act”.
Thus, whether an agency relationship exists or not in a given set of circumstances raises both factual as well as legal problems. This duality of significance was more succinctly brought out by Herschell L.J in Kennedy v. Annette De Trafford & Ors (1897) A.C. 180.
That court had the opportunity of dealing with the nature of agency relationship and observed that:
“No word is more commonly and constantly abused than the word ‘agent’. A person may be spoken of as an ‘agent’ and no doubt in the popular sense of the word may properly be said to be an ‘agent’ although when it is attempted to suggest that he is an ‘agent’ under such circumstances as to create the legal obligation attaching to agency that use of the word is only misleading”.
The above dictum stresses the two most important considerations in any attempt at defining the term agent.
In the first place, it distinguishes the legal meaning of the term from its ordinary or popular meaning. There may be many instances in which a person represents or acts for or on behalf of another. But the true law of agency applies only when the act of the presumed agent produces legal consequence. The legal requirement in this respect is that such representation in order to create a true agency relationship must be performed in such a way as to be able to affect the principal’s legal position with respect to strangers to the relationship.
Thus, the law of agency does not apply to social or other non-legal situations for example, when a man sends his wife or son to represent him at a wedding, launching, or naming ceremony, the law of agency has no application thereon. The reason for this is the law regards these relationships as intended purely to serve a social purpose. In other words, there is no intention to create legal relations between the parties.
In contrast, where a house-wife sends a boy or girl to purchase a loaf of bread from the local shop or super-market, she invests the boy or girl with authority to contract in respect thereto.
Thus, in the process of executing this simple instruction of the housewife, some legal rights and obligations could be created in favour of or against her.
Secondly, the dictum stresses that where true agency relationship exists or subsists, it does so irrespective of what the parties concerned choose to refer or label it.
In Bamgboye v. University Of Ilorin & Ors (1991)8 N.W.L.R 129, the Court of Appeal was given the opportunity to examine the characteristics of an agency relationship. It held, inter alia, that agency, in law, is used to connote the relation which exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal and third parties. The court went further to hold that the question whether that relationship exists in an y situation depends not on the terminology used by the parties to describe it, but on the nature of the agreement between the principal and the agents.
The issue is that the fact that the parties have called their relationship an agency is not conclusive, if the incidence of the relationship as disclosed by evidence does not justify a finding of agency. The existence of an agency can only be deduced from facts.
This dictum stresses the abuse in the use of the word ‘agency’ or ‘agent’. Nowhere is such abuse most prevalent than in business transactions. In Nigeria, the terms agent, dealer, representative, sole agent, sole representative, wholesaler, retailer, attaché etc. are frequently employed as synonymous.
The word, ‘agency’ can therefore be graphically seen in a situation where P (the principal) instructs A (the agent) to act in the purchase of goods from T (the third party) in the sale of goods. The contract of sale that is made by A is enforceable between P and T. In general, A has no liability to either P or T on that contract.
SELF ASSESSMENT EXERCISE 1
- Discuss the concept of agency in commercial transactions
- Attempt a definition of an Agency.
The Origin of Agency
The origin of the modern law of agency can be traced to the early medieval period where instances of the institution were identified in some rudimentary forms. Some early English writers traced these to the English doctrine of Uses.
Although the rudimentary form of an agency can be isolated and perceived, there was no developed legal institution which could be strictly described as agency. There was therefore very little law on the subject at the time. In fact, the designation ‘agent’ or ‘agency’ was not used under the English Common Law before the seventeenth century. The idea of representation or agency was as of that time subsumed with other service functions or auxiliaries, especially the master-servant relationship. With the development of commercial life, in many ways, such as the growth of trading companies, the law of agency grew in importance and extent and eventually emerged as a separate concept distinct from the relationship of master and servant.
Its further development was aided and encouraged by the introduction of both equitable and civil rules. The court of chancery dealt with the relationship of principal and agent as if it were a relationship of cestui que trust and trustee. Holt, C.J introduced ideas developed by the Court of Admiralty in respect of the relationship of ship owners, masters and merchants into the law dealing with the relation of principal and agent.
This growth in commercial life, especially with the rise in trading companies showed that both in contract and tort, the issue of agency was vital. As a result of this pivotal position agents occupy in commerce they play a major role in the consummation of commercial transaction in modern times. For example, a sale of good s abroad by an exporter or a purchaser by an importer may be brought into effect through an overseas agent. A newspaper may obtain order for advertisements also through the intervention of an advertising agent.
The origin of the concept of agency is also traceable to the use of people to effect contracts in private transactions. A man may engage the services of a broker to effect an insurance contract or a sale or purchase of shares in a company. He may also sell or purchase a house or real estate through an estate agent.
Generally, an agency relationship may be described as a special kind of contract or fiduciary relationship or simply as a grant of authority. It is relevant in our every modern day transactions.
Theories of Agency
There are three main theories that seek to define and explain the role of the agent.
These are:
The power-liability theory. The consent theory.
The qualified consent theory.
The Power-Liability Theory
The concept of agency exists when a person (the agent) acquires the power to alter the principal’s legal relations with a third party in such a way that it is only the principal who can sue, and be sued by that third party. This focuses on the external relationship with the third party and ignores the internal relationship between the principal and the agent.
The power-liability theory excludes many who are commonly called agents. Estate agents introduce buyers to sellers without, usually having any power to bind either party. Nevertheless, they are subject to fiduciary duties in the same way as agents narrowly defined.
The Consent Theory
According to the US Restatement (third) of Agency (Tentative Draft No. 2) (2003)
“Agency is the fiduciary relationship that arises when one person (a principal) manifests assent to another person (an agent) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents to act”
In focusing on the fiduciary that an agent owes a principal there is recognition that agency exists only where someone is undertaking more than merely ministerial functions.
In other words, the agent must have been invested with a degree of discretion that shows the principal has placed trust and confidence in the agent. It is this which gives rise to a fiduciary duty.
The problems associated with the definitions of an agency under this theory are as follows:
It places attention on the internal relationship between principal and agent while ignoring the external relationship with the third party.
It also ignores the fact that agency relationship not only requires the assent of the parties, in all cases but such consent may not be necessary in an agency of necessity situation.
That consent or assent is only required in special cases.
It is noteworthy that whether or not the principal and agent consented to the creation of an agency is determined by an objective standard. The law is not concerned with the principal’s or the agent’s opinions. It takes cognizance of the objectives of the parties and whether the reasonable person would conclude that an agency existed.
The existence of an agency may be presumed, for instance, where Funmi represents to Bayo by actions or words that Ibrahim has authority to act as an agent and Bayo has acted on that representation.
Qualified Consent Theory
This theory combines the consent theory with the protection of ‘misplaced reliance’ to account for actual and apparent authority. This is more clearly defined in agency by ratification to reflect commercial reality since authorization may not always be neatly contemporaneous with the initial transaction.
SELF ASSESSM ENT EXERCISE 3
Discuss briefly the various theories associated with the concept of agency.
CONCLUSION
A thorough perusal and understanding of this unit would enable the student to thoroughly understand the concept of agency, its origin and the various theories usually employed to determine the existence or otherwise of an agency relationship.
SUMMARY
This unit thought us:
- The various definitions of an agency.
- The origin of agency as a legal conceptin commercial transactions.
- The various theories associated with the concept of agency.
TUTOR-MARKED ASSIGNMENT
- Attempt a concise definition of an agency as a legal
- The origin of agency is vague; Discuss
- Distinguish the various theories of agency as a concept in commercial transactions.
REFERENCES/FURTHER READINGS
Kingsley Igweike (1993). “Nigeria Commercial Law: Agency.”
Jos, Nigeria: FAB Educational Books.
American Restatements, Second, Agency, Article.
Friedman, G.H.L. (1984). Law of Agency, 7th Edition. London: Butterworths.