THE NATURE AND CHARACTER OF AGENCY RELATIONSHIP

CONTENTS

1.0      Introduction

2.0      Objectives

• Main Content
• The Consent of the Parties
• The Authority of the Agent
• Agency and Other Relationships Distinguished
  • Agent and Trustee
  • Agents, Servant and Independent Contractor
  • Agent and Banker

4.0      Conclusion

5.0      Summary

6.0      Tutor-Marked Assignment

7.0      References/Further Readings

INTRODUCTION

The concept of agency in commercial transactions is a universal  one.  With  the  role played by agents as middlemen in the actualization of existence of contracts,  it appears their existence is unavoidable. Agents do not come on board of business transactions without the requisite consent, approval or authority of their principals to so  act.  Hence, they derive their authorities to act through their principals who in turn fulfill their own obligation under the terms of employment. In  this  respect,  the  basic  rules  for  the coming into effect of a  valid  contract  must  be observed. For this reason, the agent will  not be able to enforce such contracts where there is a perceived breach.

In this unit, we shall deal extensively on the nature and character  of  an  agency  relationship with particular emphasis  on  the  consent  of  the parties,  authority  of the agent and a vivid comparison of agency with other related situations.

OBJECTIVES

At the end of this unit, students should be able to know the basic nature and  character  of  an agency relationship. This unit is meant to deal, in concise form, with the  issue  of consent of the parties to an agency relationship. It will also  deal  with  the  authority  of  the agent to act as such on behalf of his principal and a thorough comparison  of agency  and other related relationships which are often mistaken to an agency relationship.

MAIN CONTENT

The Consent of the Parties

Though there may remain some unresolved minor problems, once the relationship of principal and agent has been  shown  to  exist  absolutely, the main consequences are clear. A major problem however remains that at determining whether or not such a relationship exists in any given set of circumstances and if so at what point in time. The concern in this respect is the consensual aspect of the relationship as the major determining factor. This is more  apparent  when  considering  the  various definitions  of  agency.   An   example   is the definition preferred by Bowstead. He defined agency as:

“the relationship that exists between two persons, one of whom expressly or  impliedly  consents  that  the  other  should represent him or act on his behalf and the  other whom similarly consents to representing the former or so to act”.

Consent  is  also  manifested  in  the  definition  in  the  American  Restatement  on Agency. It is no doubt that consent is absolutely necessary in establishing agency relationship.  This  has  received  judicial approval  in  many  cases.  For  instance   in Ayua v. Adasu (1992)2

N.W.L.R. 598, the Supreme Court of Nigeria quoted with approval the dictum of Lord Pearson in Garnac Grain Co. v. H.M.F. Fairclough Ltd (1967)1 Lyds. Rep. 495. that;

“The relationship of principal and agent can only be established by consent of the principal and the agent”

The learned jurist however went on to say that:

“They will be held to have consented if they have agreed to what amounts in law to such a relationship even if they do  not recognize it themselves and if they have professed to disclaim it.”

He further emphasized that:

“The consent must however have been given by each of them either expressly or by necessary implication  from  their words or conduct.”

This dictum of the learned jurist raises two fundamental issues. First is “what amounts to consent in such a case?” and  secondly,  whether  it is right to say that the relationship of principal and  agent exists only where  the agent and the principal have so consented.”

It is submitted that consent is fundamental in cases  where  such relationship was established by agreement and contract. It is not uncommon to find that in commercial transactions, most agents are appointed by this method. Under certain circumstances, the law may impose or thrust agency relationship upon the  parties  irrespective  of their consent or indeed knowledge.

SELF ASSESSM ENT EXERCISE 1

Consent is fundamental to the creation and existence of an agency, Discuss.

The Authority of the Agent

It is an essential characteristic of agency relationship that the agent is vested with legal authority or power to alter the legal relations of the principal with  third  parties.  This seems to provide the nucleus of a true agency relationship. This underscores its representative character and the ability of the agent to subject the principal to personal responsibility and liability while creating rights in his favour as well as obligations against him.

Thus, in holding the principal bound by an act of the agent,  it must  be established  that such an act was legally  authorized.  The principal  will only be  bound  to the  third party by an act which is within the agent’s authority. However, an act which is ultra vires this authority, unless ratified by the principal, will not bind him.

The notion of authority is still very important in agency relationships in that it enables the judge or lawyer to state, even if provisionally what th e agent can do and  how  he  can affect his principal beneficially or adversely. In this regard, it becomes pertinent to determine both the source and the scope of the agents claimed or asserted authority.

An agent’s authority may be derived from both an agreement between him and his principal, expressed or implied, or from  operation  of  law.  The  exercise  of  such authority binds the principal if the agent acted within his actual (real) authority or his apparent (ostensible) authority.

The Actual or Real Authority

The actual or real authority refers to the authority of the agent to do that which  the principal has agreed that the agent should  do  for  or  on  his  behalf.  It  includes  the  power to carry out whatever the principal has expressly mandated the agent to do or impliedly engaged him to accomplish. Such authority may emanate from express instructions given by the principal to the agent, or implied from the words  or conduct of  the principal.

In Freeman and Lockyer v. Burkhurst Park Properties LTD (1964)1 ALL E.R. 630, DIPLOCK, L.J. described the actual or real authority of the agent as  the  legal relationship which subsists between the principal and the agent created by consensual agreement to which they alone are parties. Its scope, he states, is to be ascertained by applying ordinary principles of construction  of  contract  including  any proper implication from the express words used, the usage of the trade,  or  the  course  of  dealing between the parties such an authority. He went further  to  state  that  such authority may be express when it is given by express words or implied when it is inferred from the conduct of the parties or from the surrounding circumstances of the case.

The Apparent or Ostensible Authority

The apparent or ostensible authority refers  to  authority  which  in  fact  does  not  but merely appears to exist. It is essential that the appearance of such an authority emanated from an independent act of the principal manifested to a third party.

Thus,  the  basic  difference   between   actual   authority   and   apparent authority  is  that  in the  former,  the  expression  of  authority  is  made directly to  the  agent,  whereas  in  the later, the expression is made to a third party with whom the agent deals.

An agent who has apparent authority may or may not have actual authority, though it may coincide or sometimes exceed  it. The apparent or  extensible  authority  extends  to  doing all acts which a reasonable person or a person of ordinary prudence familiar with the customs and usage of the particular community, trade, business or profession where the agent is employed, would be justified in assuming that the agent has authority to perform.

SELF ASSESSM ENT EXERCISE 2

Distinguish between actual and apparent authorities of an agent.

Agency and Other Relationships Distinguished

The concept of agency in commercial transaction has in most cases been mistaken to be the same with some other relationship of  similar  nature  and  character.  A  preliminary way of understanding the typical features of agency relationship is  to  compare  and contrast an agent with some other  functionaries  and relationships  which  appear  similar but invariably are distinct and different. Such functionaries include trustees, servants, bailees, and independent contractors.

Agent and Trustee

For certain purposes,  an  agent  may  be  treated  as  a  trustee  of  his principal. An example of this is  in cases of money had  and received on behalf of the principal. Equally,  a trustee may for certain purposes be treated as an agent of the beneficiary (cestui que trust). There is also the historical antecedent between them in that at some point in  time,  the concept   of   agency   took   its   root   from   that   of   trusteeship.    The consequence is that certain principles of law are thereby applicable to both, such as the doctrine of fiduciary relationship with its attendant incidents. Both functionaries are nonetheless distinguishable on the following grounds:

1. the relationship of principal and agent is generally consensual in origin, whereas and except in minor cases,  a  trust  is  created without the consent of the beneficiary (cestui  que trust) or the trustee
2. when an agent is appointed, this  is  invariably  done by  the principal himself,  whereas, in a trust situation, the trustee is never appointed by the beneficiary (cestui que trust).
3. the agent is for all purposes, the representative of his principal in dealing with third parties whereas, the trustee is not in any way the representative of the beneficiary (cestui que trust).
4. actions between  the  principal  and  the  agent  may  be  barred  by lapse  of  time   under  the  limitation  Acts  whereas,   no   such  limitation  is  imposed   on  actions between the beneficiary (cestui que trust) and the trustee.

Agent, Servant and Independent Contractor

Basically, an agent is distinguishable from both a servant and an independent contract. The essential feature of the master servant relationship is that the master always has the right to control the diligent performance by the servant of the terms of his employment. While a servant merely works for his master, an agent acts for and in place of his principal to effect legal relations of his principal with third parties.

The distinguishing features  of  an  agency  relationship  are  its representative  character and derivative authority which gives the  agent  a degree of discretion  in the performance of the terms of its agency which a servant would not ordinarily have.

An independent contractor on the other hand renders services to his employer in  the course of an independent occupation or calling. He contracts with his employer only as to the results to be achieved, but not as to the means whereby the work is done.

Accordingly, he employs his own means and skill and is entirely independent of control and supervision of his employer.

Agent and Bailee

A bailment arises where personal property is delivered or transferred by the  owner  (bailer) to ano ther person (bailee) under an agreement that the property can be  returned  to the owner (bailor) or transferred to a third party or dealt with in any other way  indicated by the owner (bailor). The bailee is not an agent of the bailor strictly speaking since he has no authority to deal with the property in  any  other  way  except  in accordance with the instructions of the bailor. The bailee does not be render  any  service at all to the bailor which is an essential purpose of agency.

There are some important distinguishing features between an agent and a bailee.

• The agent is the representative of his principal but the bailee does not thereby become  the representative of the
• The agent has authority to contract for and on behalf of his principal and can make him liable in tort. A bailee essentially has no authority to bind the bailor in contract except perhaps to preserve the property the subject of the bailment, and can  rarely make  the bailor liable in tort.

SELF ASSESSM ENT EXERCISE 3

Discuss and state the essential distinguishing features of an agent, trustee, servants, independent contractor and bailee?

CONCLUSION

This unit has revealed the basic nature and characteristics of agency vis- à-vis  the authority of an agent and the differences between the concept of agency, trusteeship, servant, independent contractor and bailment. All these are basically common  law concepts but now more relevant and applicable to issues arising from commercial transactions.

 SUMMARY

This unit has revealed the following facts.

1. The necessity of the consent of the parties to the creation of an
2. The basic differences between the various heads of authority of an
3. The distinguishing factors and elements of an agency relationship with particular reference to trusteeship, servant, independent contractor and a bailment.

 TUTOR-MARKED ASSIGNMENT

1. Consent is fundamental to the creation and existence of an agency. Discuss.
2. Distinguish between actual and apparent authorities of an
3. Discuss and state the essential distinguishing features of an agent, trustee, servants, independent contractor and bailee?

 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.