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
- be made by word or conduct or acts of a general nature;
- 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
- Agency by estoppel entails only the ostensible and apparent authority of act as an agency.
- 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
- An agency relationship can only be created by oral agreement.
- Agency by estoppel entails only the ostensible and apparent authority of act as an agency.
- 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.