LL.B Notes

 FORMALITIES TO CREATION OF AN AGENCY

CONTENTS

1.0      Introduction

2.0      Objectives

  • Main Content
  • Agency by Agreement or Contract
  • Agency by Estoppel

4.0      Conclusion

5.0      Summary

6.0      Tutor-Marked Assignment

7.0      References/Further Readings

INTRODUCTION

One of the several ways an agency situation comes to life is estoppel and this occurs intentionally or by necessary implication. When this situation arises,  the  supposed principal will be estopped from denying the  fact that  a  third  party acted  on  the belief that  the  agent  was  actually  that  of the  principal.  The  principal  will  therefore  be bound by an act or omission of the agent.

OBJECTIVE

The main objective of this unit is to bring to discuss the  requirements for an agency  created by estoppel. This is done by delving into the basic elements that qualify such acts  of the supposed agent as that of the supposed principal.

MAIN CONTENT

Generally, no particular  formalities  are  required  for  the  creation  of  agency  relationship. Consequently, the principal-agent relationship may be  established  by words of month, by mere conduct or by writing and may also be inferred from the circumstances of a particular case.

Some appointments are required by law to be in writing or evidenced in writing or in any other particular manner. Thus, a power  of attorney or the  instrument  of  appointment  of an agent who is required to execute a deed must be in the form of a deed.

Agents, such as solicitors, are sometimes, desirable to be appointed in writing so that the effect of agency and the extent of the authority conferred may easily be ascertainable.  Apart from such appointments, the law does  not  require  formal  evidence  of  the existence of an agency relationship.

In Heard v. pillay (1869) 4 Ch. App 548, it was held that a contract of purchase of land made by an agent will be enforced although the agent was appointed by parole.

In Davis v. Sweet (1962)2 Q.B. 300, DANCKWERT, L. J, delivering the  judgement  of the Court of Appeal (English) observed on the same point that:

“…..  But  such  an  authority  may  be  conferred  upon  an estate agent expressly or may be informed from the circumstance of the case. It seems to me  that  authority to enter into a contract on behalf of the defendant should  be inferred  from the circumstances of this case”.

In the Nigeria case of Rosenje v. Bakare (1973)5 S. C. 131, the question arose as to whether  a contract  made  by an  agent  in  order  to satisfy  the  provision   of   section 5(2) of the  Law  Reform (contracts)  Act  1961,  the agent’s appointment  need  necessarily be in writing. The section which is the same as section 4 of the  English  Statute of Frauds of 1677 provides that:

“No contract to which this section applies shall be enforceable by action  unless  the contract or some memorandum or note in respect thereof is in writing and signed by the party to be charged therewith or by some other person lawfully authorized by him”.

The Supreme Court held that the section does not prescribe any form of authorization  of an agent, although it is tidier and certainly desirable to expect a formal authorization.

Agency by Agreement or Contract

One  of  the  basis  of  a  contract,  agreement  is  the  consensus  of   the contracting parties to the terms and conditions of the proposed contract. The  same  principle  applies to the formation of an agency agreement by express agreement or contract of the terms thereof. In commercial transactions, an agreement is the revelation of the intention  of  both the agent and the principal unequivocally to constitute such a relationship.

In  Ayua  v.  Adasu  &  Ors  (1992)3  N.W.L.R.  598  Akanbi,   JCA, restated the law in the following statement of page 611 thus;+

“In the ordinary law of Agency, the paradigm is that  in which the agent and the  principal  agree  that  one  should act for the other. And the  term  “agency”  is  assigned  to  this basic principle which involves consent of both parties. It is therefore trite law that agency arises mainly from a contract or agreement between the parties express or implied”.

The basic element in this situation is a  manifestation  by  the  principal  that  the  agent shall act for and on his behalf and an evidence of the agent’s acceptance of that undertaking.

On the part of the principal,  there must be either  an actual intention  to appoint the agent  or an intention inferable from his words or conduct.

Where an agency relationship was set up through an agreement, such agreement must nonetheless possess all the essential pre-requisites or elements of a valid contract to be sustainable. To establish the existence of a valid contract therefore,  the general rules of  law of contract are applicable. These rules have been comprehensively treated in first semester.

It is to be noted that the mere fact that a person was described as an “agent or his relationship with  another  person  described  as  “agent”  in  an agreement  is  not conclusive in law of such facts. Where such an agreement is by parole, proof would necessarily be essential for mere spoken words could easily be misunderstood or misinterpreted. The burden of proving the existence of such a relationship rests on the  party who asserts it.

Where however, such an agreement is inferred,  from  conduct,  the  law  demands  that there must be some positive act from which such inference can be drawn.

SELF ASSESSM ENT EXERCISE 1

An agency relationship can only be created by oral agreement. Discuss.

Agency by Estoppel

The general position of the law in this area is to the effect  that  where  a  supposed  principal intentionally or otherwise causes a third party to believe that another person  is  his agent and the third party  so  relies  in dealing with the supposed agent, the principal  will be estopped from denying the existence of an agency relationship between him and e supposed  agent.  In  such  a  situation,  the  supposed  principal   will  be bound by an act or omission of the supposed agent to the same extent as if an agency relationship had existed between them.

In Lukan v. Ogunnusi (1972)5 S.C. 40, the Supreme  Court  of Nigeria affirmed this  when it stated that:

“When a person behaves in such a way as to lead another person to believe that he has authorized a third  person  to  act on his behalf and that  other  person  in  such  belief, enters into transaction with the third person within the scope of such ostensible authority, the first  mentioned  person would be estopped from denying the fact of the first person’s agency. It would be immaterial whether the ostensible agent had no  authority  whatever  in  fact.  It would also not matter whether the ostensible agent acted in excess of his usual authority”.

Agency by estoppel is based on the principle of “holding  out”  by the principal to the third person or upon the “apparent” or “ostensible” authority of the agent.

Thus, in Didigun v. R.T. Briscoe Ltd (SUPRA) OMOTESHO, J. emphasizing  this element of estoppel stated that:

“In law ostensible authority gives rise to agency by estoppel. Ostensible authority is based on the doctrine of “holding out””…. The holding out may be by acts  of the principal.  For example, by allowing the agent to hold himself out as having authority. An important factor however, is that there must be a holding out by the principal, some acts of the principal which are capable of leading another to believe  that the ostensible agent has authority”.

The classical, judicial statement of the  doctrine  of  agency  by estoppel was  made  in Saul  Raccah  v.  Standard   Company   of Nigeria  Ltd (1938) 4 W.A.C.A  162. The  court observed as follows:

“…. where any person by word or conduct, represents or permits it to be represented that another  person  has authority to act on his behalf, he is bound by  the  acts  of such other person with respect to anyone dealing with him as an agent on the faith of such representation, to the same extent as if such other person had the authority, he was so represented to have”.

It is therefore    possible,     from    the    above    illustrating     and    judicial authorities, to proffer a broader definition of the  term  “estoppel”  which would  eliminate the need  for the  secondary  category of agency liability based  on   apparent   authority.   In   some ways,  the  two  categories, (ostensible  and  apparent  authorities)  seem  to  cover  the same area. That is, that the principal has  done something  or has failed  to do  something  on which a reasonable third party relies upon as granting authority on  the  agent  to  contract on behalf of the principal. In those circumstances it is right to hold the principal bound and responsible for any resulting contract with the third party. Nevertheless, there is still reason for considering them distinctly. Some courts have distinguished them and secondly apparent authority as opposed to ostensible authority generally describes the situation in which the principal has been more active in causing his own liability. 

ESSENTIAL ELEMENTS OF AGENCY BY ESTOPPEL

Representation

For a successful plea of agency by estoppel, a party must show  some  statement  or  conduct by the principal amounting to a representation that the supposed agent has the authority he has been represented to have.

In Adeniji v. Jadesimi (1976) 3 Pt. 1 OYO SHC. 142 at page 145, Agbaje  J., In this respect pointed out that:

“Where, as in this case,  the  appellant  did  not  have contract with the respondent in  so  far as  the  transaction, the subject matter for this action are concerned before the transaction was concluded between her and the first defendant it is difficult for one to  say  that  the  appellant  had by words or conduct represented or permitted to be represent to the respondent that the first defendant had authority to act on his behalf in those transaction.”

In President Clothing & co. Ltd v Joseph Anyanwu (1975) 1 CCHCJ 1, a Lagos High Court held that a representation in order to amount to ostensible authority must

  1. be made by word or conduct or acts of a general nature;
  2. be made by the principal or by sources authorized to act for him;
  • representation of fact

In Colonial Bank and Anor. V. John Candy and Anor (1890)  15  A.C  .267  ,  the English court of appeal held that for a statement or conduct to  amount  to  a representation. It must be clear and unambiguous.

Reliance on Representation

The party who raise the issue of estoppel must show not only that a representation was made to him but in actual fact he acted upon it. If however he did not act at all on the faith of the representation, no agency of estoppel has been created.

In  Farguharson  Brothers  &  Co.  V  King   &Co.(1902) A.C.325, Lindley L.J. said   that:

“The holding out must be to the particular individual who says he relied on it, or under such  circumstances  of  publicity as to justify the inference that he knew of it and acted upon it.”

Alteration of Position

For a successful plea of estoppel by representation, the claimant must show  that  he altered his position consequent upon the representation and to his detriment.

Therefore, if he has not altered his position at all, or has done so but has not suffered any loss or detriment thereb y, or has done so but not on  the faith of the representation, there is no valid agency by estoppel.

The position of the law on this issue is that for a representation to operate as an estoppel, it must be “the proximate cause of the loss” suffered by the third party.

Generally, a party seeking the aid of estoppel must himself have acted honesty  and without knowledge that the supposed agent had no authority or that he had exceeded hit authority, if that be the case. This is based on the fact that estoppel is an equitable remedy and he who comes to equity must do so with clean hands and must have acted without blemish.

SELF ASSESSMENT EXERCISE 2

  1. Agency by estoppel entails  only  the  ostensible  and  apparent authority of act as an agency.
  2. Discuss the major element of an agency created by estoppel

CONCLUSION

The formalities for the creation of an agency are quite straight forward. Where  the  principal agent holds himself out in some way with the knowledge and understanding  of the principal, the principal shall be estopped from indemnifying himself from liability.

SUMMARY

With the understanding of the Doctrine of Agency by Estoppel, particularly its essential elements, learners should have less difficulty in identifying one where the situation arises.

TUTOR-MARKED ASSIGNMENT

  1. An agency relationship can only be created by oral agreement.
  2. Agency by estoppel  entails  only  the  ostensible  and  apparent authority of act as an agency.
  3. Discuss the major element of an agency created by estoppel

REFERENCES/FURTHER READINGS

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

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.

American Restatements, Second, Agency, Article.

Friedman,   G.H.L.   (1984).   Law   of   Agency,   7th     Edition. London: Butterworths. Companies and Allied Matters Act (1990). Laws of the Federation of

Nigeria.

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