RELATIONSHIP BETWEEN PRINCIPAL AND AGENT

CONTENTS

1.0      Introduction

2.0      Objectives

• Main Content
• Duty to Perform
• Duty of Obedience or Loyalty
• Duty of Care and Skill
• Duty of Personal Performance
• Duty to Act in Good Faith
• Duty to Account

4.0      Conclusion

5.0      Summary

6.0      Tutor-Marked Assignment

7.0      References/Further Readings

INTRODUCTION

In modern commerce, the relationship of principal and agent is primarily consensual. Consequently, the rights and duties arising from such relationship  are  discernible  from  the express or implied agreement between  the  parties.  The  relationship  is  often described as fiduciary in the sense that it arises out  of the  trust or  confidence  reposed upon the agent by the principal. Hence, there exist rights and obligations with attendant duties on both parties to one another.

OBJECTIVES

The major objective of this unit  is  to bring  to  the  fore  and  discuss  the major duties of an agent to his principal when such relationship is established to exist. The continuation of the agency relationship is dependent on the agent carrying out his duties as such diligently to the principal. 

MAIN CONTENT 

In commercial transaction it is apparent that a principal may  sometimes  engage  or  appoint an agent who belongs to a particular trade, business or profession or may be required or instructed to operate  at  a  particular place or locality.  In some  of the cases,  the principal is not always  with the  agent and this requires the agent to perform  some  basic duties to the satisfaction of the said principal. These duties are the basis of this unit.

Duty to Perform

The primary duty of an agent particularly where he was appointed under an agreement with the principal is to execute his agency in accordance with the terms  of  such agreement. In Otto Hamman v. Senbanjo & Anor (1962)2 All N.L.R.  B9 Adefarasin.  Ag. J., aptly stated the position thus:

“It is the duty of an agent to carry out the business he had undertaken. This was  his obligation unless he had in his contract expressly excluded responsibility.”

However, where the agent fails to perform his duties or to do so in accordance with the terms of his contract, he is generally liable  only  for  the  breach  of  his  agency agreement. If he  performs  such  duties carelessly or in  an  imperfect  manner  and thereby causes loss to his principal, he may in addition  become  liable  in  negligence. Such liability may take the form of an action for damages for the loss suffered by the principal, or an indemnity or contribution from the agent in favour of the principal.

However,  his  duty  to  perform  is  not  absolute.  If  he  was  unable  to perform  his  duty, he must promptly inform his principal or any other person having authority to receive such information.

Also, if the duties are illegal, he is not bound  to  perform  then.  If  he  is  also  a  gratuitous agent, he will not be liable for breach of duty to perform

SELF ASSESSMENT EXERCISE 1

The duty of an agent to perform his duties based on the terms of the contract is absolute. Discuss.

Duty of Obedience or Loyalty

When an agent is executing the terms of his agency, he is obliged to carry out such instructions as may be given to him by the principal relating thereto. In  Eso  West  African INC. v. Ali (1968)  N.M.L.R  414 , an Ibadan  High Court held,  inter alia, that it  is the duty of an agent to carry out any instructions that may be given to him by the principal and cannot depart from such instructions even though  he reasonably believed that in doing so he was not promoting the interest of the principal.

Exceptions

1. Where no definite instructions has been given to the agent, or where such has been given, but this leaves the agent a measure of discretion, he would only be expected to be guided by the reasonable and honest exercise of his own judgement and the interest of the principal. If he is therefore so guided, he incurs no liability even if the principal suffers a loss by their exercise.
2. If the principal’s instruction is ambiguous,  the  agent  is  put  to election  and provided he acted fairly and honestly, he would not be in breach of his duty of obedience  and honesty even if the course chosen by him is less favorable to his principal
3. If the agent is a  professional  agent  the  principal’s  instructions  may be  subject  to any custom or usage of the particular trade, business or profession to which the agent belongs or within which he operates.

SELF ASSESSMENT EXERCISE 2

What is the extent of obedience or loyalty required of an agent to his principal.

Duty of Care and Skill

In the course of executing the terms of his agency, an agent is bound to exhibit such care, skill and judgment as are required under the circumstances of the particular situations. In Spiropolous Co. Ltd. v. Nigeria Rubber & Co. Ltd (1970) N.C.L.R. 94, a High Court in Benin held that the prudence which an agent is expected to show in the affairs of his principal requires that he should not involve the principal in a heavier financial burden where there is available means of involving him  in  a  lesser  financial  burden. Accordingly, it was held that an agent who undertook to effect a policy of insurance on behalf of his principal is under a duty to do so at the most economical rate.

The  degree  of  care,  skill   or   diligence   required   of   an   agent   may sometimes depend on whether he is a gratuitous agent or acting for reward. If he was acting for  reward, a higher standard of care, skill or diligence is required of him. If he were a professional, agent or holds himself out as possessing a  professional  qualification,  he  must exhibit such care, skill or diligence as is usual or necessary or for the proper conduct of the trade, business or profession in which he is employed.

However, if he holds himself out to the principal as possessing a special skill or knowledge, then he is obliged to exhibit such care, skill or diligence as  would  normally  be shown by one possessing such skill or knowledge.

SELF ASSESSMENT EXERCISE 3

What is duty of care and skill?

Duty of Personal Performance

The basic principle of law in this regard is covered  by the  maxim  “Delegatus  Non Potest Delegare” which means  a  delegated  power  cannot  be  further  delegated.  Agency  relationship  is   one   of confidentiality of principal and the agent, and the agent  is generally expected to perform his duties as an agent, personally.

In the realm of agency, an agent cannot entrust to another person or a sub-agent the exercise of an authority or duty entrusted to him by his principal without the latter’s express or implied authority to do so. In Bamgboye v. University of Ilorin  &  Ors  (1991)8 N.W.L.R. 1, the Court of Appeal affirmed that an agent to whom power is delegated cannot further delegate it without the express authority of the principal or authority derived from statute.

Exceptions

The recognized exceptions to this general rule include: 

• Where the transaction is required by statute to be evidenced by the  signature of the principal himself
• Where the competency to do the act arises by virtue of  holding  some  public office or by virtue of some power, authority, or duty of a personal nature  and requiring skill or discretion for its existence
• Where a statute imposes on a person a duty which he is not free to delegate to another
• Where the  agent  has  the  express  or  implied  authority  of  the principal  to do so
• Where no personal confidence is reposed on the agent by the principal or by the terms of his Agency
• Where the function or duty of the agent does not  require  an y particular skill or discretion or is purely ministerial
• Where a custom or usage of the trade, business or profession  of the agent  or within which he operates allows
• Where an emergency has arisen requiring immediate or instantaneous action in order to preserve or protect the interest of the principal or  the agency itself
• Where the nature of the agency itself necessitates a partial or total delegation, without which it would be superflous or unreliable.
• Where the principal ratifies the act of the  agent in  appointing  a sub-agent or an act or omission of the supposed sub-agent either directly or otherwise
• Where the authority to delegate is derived from a statutory or legislative provision or enactment

SELF ASSESSMENT EXERCISE 4

Discuss    the    various    exceptions    to    the    general    rule    contained    in    the maxim, Delegatus Non Potest Delegare” 

Duty to Act in Good Faith 

This duty of an agent arises principall y from the fiduciary nature or character of the principal-agent relationship. Agency relationship, as a whole, is based essentially on the trust reposed on the agent by the principal. The principal employs an agent normally because he requires that agent’s personal service or expertise. He will usually depend on  the agent for the due performance of those services. The law imposes on the agent the duty to show good faith in his dealings on behalf the principal.

The duty of good faith has many corollaries. These are:

• The agent must avoid clash of personal interest with that of his principal.
• The agent should not make any secret profit  or other benefit from his position as agent in excess of his agreed commission or remuneration
• The agent is under an obligation not to take a bribe while executing his agency

In cases where the giving or receiving of bribe is established against the  agent,  the principal could exercise the following options:

1. dismiss the agent immediately and without notice
2. refuse to pay the agent any salary or commission payable or accruing
3. recover any salary or commission already paid on the particular transaction
4. recover the amount of the bribe paid to the agent
5. claim damages from the agent or the third party for any loss occasioned by the bribe.

SELF ASSESSMENT EXERCISE 5

The duty of an agent to act in good faith is qualified. Discuss.

 Duty to Account

It is a fundamental obligation of every agent to keep  and  to  render appropriate  account of his stewardship to his principal  whenever  he  is called upon  to do so.  Thus he must  be willing and ready at all  times  to render  an  account  of  all  transactions  undertaken  by him for and on behalf of his principal.  This  duty is  more  particularly  important where money or property has been received for and on behalf of the principal. In Majekodunmi v. Joseph Daboul  Ltd.  (1975)2  C.C.H.C.J.  161,  a Lagos High Court held, inter alia, that once the relationship of principal and agent is established, and the agent fails to keep proper account or fails to account to the principal for monies or properties received by him in the cause of his agency, he is accountable to such  a  principal and can be compelled  to  render  such  account  by  an  action  in  a  court  for  an account.

However, some individual obligations of the agent to his principal relating to the duty to account flow from the general duty to account. These are:

• duty to keep proper account
• duty to make books and documents in his possession relating to the execution of the agency accessible to his principal
• duty to keep his personal monies separate from his principal’s money
• he is under a duty, if he holds money or property on behalf of his principal, to pay over or account for such money or restore such property to his principal notwithstanding claims made by third parties provided that the money or property was not received in respect of a void or illegal transaction or that the agency itself is not void or illegal

SELF ASSESSMENT EXERCISE 6

The basic duty of an agent is to render account to his principal. Do you agree?

 CONCLUSION

The basis of the needs for duties which an agent is bound to perform in respect of his principal is premised basically on the fact that most agency situations are fiduciary in nature. It is only when provisions are made as to their duties that effective  agency  could be effected.

SUMMARY

This unit has dealt with the different  duties  which  an  agent  owes  his  principal  and these include:

• duty to perform
• duty of obedience or loyalty
• duty of care and skill
• duty of personal performs
• duty to act in good faith
• duty to account

 TUTOR-MARKED ASSIGNMENT

The various duties which an agent owes his principal are absolute. Discuss.

 REFERENCES/FURTHER READINGS

Kingsley Igweike (1993). “Nigeria Commercial Law: Agency.” Jos, Nigeria: FAB Educational Books.

Markesinis and Munday, (1986). “An Outline of Agency.” 2nd Edition. Pollock and Maitland. “The History of English Law,” Vol. 11.

Sir William Holdsworth, “A History of English Law,” Vol. IV.

Walker, D.W. (1980). “The Oxford Companion to Law.” London: Butterworths. Friedman,   G.H.L.   (1984).Law   of  Agency,  7th                        Edition. London: Butterworths.