Agency Relationship

Sometimes an entity instructs another to conduct its business transactions. This is common and is known as an ‘Agency Relationship‘.

Agency is a business relationship where a principal gives legal authority to an agent to act on the Principal’s behalf when dealing with a third party.

The Black’s Law Dictionary, defines an agency relationship as; ‘a relationship between parties by agreement or otherwise, where one ( the agent) may act on behalf of the other (the principal) and bind the principal by words and actions.‘

The agency relationship requires two parties. The first is the ‘PRINCIPAL‘, which is the party who gives legal authority to another to act on his or her behalf in a business transaction. The second party is an ‘ AGENT‘, which is the party who is legally authorized to act on behalf of the principal in the Principal’s business transaction.

In Aberdeen Railway corporation co v blaikie bros, the director of a company is deemed to be the agent of the company (the principal). For one to become an agent to a principal, there must be an offer, and a willing or voluntary acceptance. As stated in Pole v Leask, where Lord Cranworth averred, that “no one can become the agent of another except by the will of that another”.

An Agency relationship, is known as “Fiduciary Relationship“, because the agent owes a ‘Fiduciary Duty‘, to the principal. This means the agent is obliged to act in the best interest of the principal. As in West Const Ltd v Batalche, where it was held, that a relevant condition for agency therefore is that the agent must be seen to be acting on behalf of the principal, not for himself. The principal also owes certain obligations to the agent too. The act of the agent for a particular purpose is the act of the principal, under the legal principle of ‘qui per alium facit per seipsam facere videtur‘ , which states that he who does a thing through another does it himself.

Obligations of an Agent to the Principal

This is subdivided into two;

1. Obligations arising from the agreement;

2. Obligations arising from the fiduciary relationship.

Obligations Arising From Agreements

Obligations arising from this group are deciphered from any express or implied agreement between the parties, they include;

1. Duty to perform

The duties of an agent depends primarily on the contract of agency, if there is one. subject to such express terms the agent owes a number of implied duties or obligations to his principal. The primary duty of the agents is to perform the contract in line with the terms or instructions of the principal as failure to do so amount to a breach of contract and the agent is held liable.

As in the case of Turpin v Bilton; where an insurance broker( agent) agreed for consideration to obtain a contract of insurance on the plaintiff’s ship ( the principal). But, he failed to do so, the ship was lost and the broker was held liable to the plaintiff (principal).

Also, in Fraser vs B. N furman Production Ltd, where insurance brokers agreed for consideration to effect an employer’s liability but failed to do so, the principal was held liable for damages in action brought against him by a third party. The court of appeal held that the brokers (agents) must indemnify the employer in that sum for breach of contract. Not withstanding, an agent is not obliged to perform the terms of his agency if these are illegal or against public policy.

As in the case of Cohen v Kittel, where it was held that an agent cannot be sued for not performing an illegal act. Also in Nigerian Craft Bags Ltd v Express Clearing and Shipping, it was held that a professional agent for example a legal practitioner, would not be expected to contravene his rules of professional conduct, notwithstanding the instruction of Principal. In Thomas Cheschire and Co v vaugham Bros & Co, where the subject matter for shipments of nitrates during the war was held to be illegal and against public policy.

2. Duty of Care and Skill

An agent must exhibit a reasonable skill, Care and Diligence in carrying out his duties. In Coggs v Bernard, a gratuitous agent was held to be in breach of the contract for not exercising due care. As in Omotayo v A.Y Ojikutu, the court held that:

a principal who appoints an agent knowing his skill and experience is not entitled to expect or require from that agent a lighter measure of skill or knowledge than one of his position and experience could reasonably be expected to possess.

An agent does not guarantee the successful outcome of the transaction undertaken by him on behalf of his principal, provided he acts honestly. But it can be demanded of him that he should show the measure of skill and diligence which could be expected of one in his position and experience. In keppel v Wheeler, a property agent did not understand the legal effect of the phrase, ‘ subject to contact’, and therefore failed to communicate a better offer to the principal, he was held liable to pay damages, as it was reasonably expected of him to understand such.

3. Non-delegation of Assignments

The agency relationship requires the agent to carry out his duties personally. That is a personal performance and not delegating such duties to another. The principle of ‘delegatus non potest delegare’, the rule that a person to whom power, trust, or authority is given to act on behalf, or for the benefit of another cannot delegate this obligation, unless expressly authorized to do so is applicable here, although in cases where it may be necessary to delegate, the consent of the principal must be sought. In John Mc Cann & co v Pow, a property agent was not entitled to commission, as the property was sold by a sub-agent, without the Principal’s consent.

Obligations Arising Out of Fiduciary Relationship

Agency relationships are fiduciary relationships. This means the relationship involves a high level of trust and confidence between the principal and the agent because the principal has trusted the agent to supervise or protect the principal’s properties, the agent owes a fiduciary duty to the principal and therefore the agent is obliged to act in the best interest of the principal. The Obligations owed are;

4. Duty of Obedience and Loyalty

Agents must act in allegiance solely to the principal. That is with the Principal’s best interest in mind and must act cautiously and prudently carrying out the principal’s instructions and not his own. As in Betram, Armstrong & co v Godfrey, a stock broker agent failed to act in the interest of the principal by following Principal’s instructions, he failed to sell the stock at a specified level which the principal directed him to. The agent was liable to pay damages to his principal for the loss of profits suffered.

5. Duty to Act in Good Faith

Duty of good faith entails:

• Ensuring that personal conflict of the agent does not prejudice the contract or interest of the principal.

• He must not make any secret profits or do anything that will be detrimental to the interest of the principal from his position as an agent.

• Agents must be accountable to the principal as the principal is entitled to an account as in the case of Akibola v Neburagho, where the court held that the Principal ( a proprietoress) was entitled to an account, for management of the school she left in the hands of the agent ( a lieutenant).

• He must not misuse or divulge any information.

In liley vs doubleday, the defendant and agent of the principal failed to act in good faith by putting the principal’s interest first and not conflicting his interests. Here, he was instructed to store goods at a warehouse where the principal had already insured. The defendant (the agent), however stored a part of the goods elsewhere and the goods caught fire. The principal unfortunately lost the benefits of the insurance because of change of place of storage. The court held liable for a breach of contract.

Rights of the Agent in Agency

1. Right of lien

The agent has and can exercise the right of lien over the principal’s goods in his possession pending the settlements of his claims with his principal. This right is only exercisable where he is entitled to receive commission or remuneration for Duty or obligation performed.

2. Right to Remuneration

A gratituous agent is not entitled to remuneration where none is provided expressly or impliedly from the agreement contract. If the work requires full performance, where performance is in part, the agent has no remuneration.

As in Mc Cullum v Hicks, it was held that the plaintiff’s claim must fail because he failed to find a purchaser to go through with a complete transaction. For an agent to be remunerated the money must have come as a result of the agents act, because it is from the profit he is to be paid.

In Bryant v Flight, the agent agreed to work for the principal and left the amount that he was to receive to the principal. The agent worked for only six months, it was held that it must be implied into the agreement that the agent has to get something for his work, he was to recover on a quantum merit.

2. Right to Action for Damages

Unless the parties agree otherwise, the agent may sue the principal to enforce his right to reimbursement of indemnity for losses, expenses or damages sustained in discharging the terms of his agency.

Generally, a principal must idemnify an agent for liability incurred in the performance of his duties, this generally arises where the instructions of the principal subjects the agents to liability to a third party, but if an agent acts outside the scope of his authority the principal may be relieved from the duty to indemnify.

3. Right to stoppage in Transitu

Where the agents stands towards his principal in the position of an unpaid seller, he may exercise the right of stoppage in transitu against the goods of his principal. He stands in such a position where having both goods for his principal, he pays the seller with his own money or otherwise incurs a personal liability to the seller for the price.

Other Remedies

Includes an Interpleader Summons to enforce or initiate a suit between the principal and the third-party. He may ask the court to decide who has the rights to the goods and enforce the judgement of the court. An interpleader summons refers to a way for a holder of property to initiate a suit between two or more claimants to the property.

Obligations of the principal

A principal can be a person, a cooperation, partnership, non-profit organisation, or even a government agency. In any case, once the principal engages an agent, the principal has necessary Obligations to perform to that agent. If a principal fails to fulfill his duties, it can result in a lawsuit based on breach of contract or tort liability. However a principal owes the agent the following Obligations;

1. Obligation to Remunerate

It is the duty of the principal to remunerate the agent for the services rendered he is required to pay the agents they are great commission or remuneration as agreed by them in the absence of an Express agreement as to the amount of commission or remuneration to be paid the court will normally hold that the agents shall be entitled to reasonable commission or remuneration.

As in Bryant v Flight where the agency agreed to work for the principal and left the amount that he was to receive to the principal. The agent worked for only six months, it was held that it must be implied into the agreement that the agent was to get something for his work, he was to recover on a quantum meruit claim.

2. Obligation to reimburse and Indemnify

The principal also owes an agent the duty to indemnify or reimburse him for every expense of a contractual or tortuous liability incurred in the course of performing his lawful duties or obligations. That is, duties and obligations within his express or implied duty, not outside the scope of his authority, as a principal will not be liable for such as in West Const Ltd v Batalche.

In Adamson v Jarvis, the principal instructed an auctioneer to sell goods which he did not have title to, an action against the agent for conversion succeeded. The court held that the agent’s action against the principal for indemnity was proper.

Rights of the Principal

1. Right to Dismissal

The principal has the right to dismiss the agent in cases of gross misconduct, such as not rendering a proper account, acting outside the scope of his authority, not remitting secret commission , etc. as in Boston Deep Sea Fishing & Lie Co v Ansell, where agent was dismissed without commission for financial dishonesty.

2. Right to Recession and Damages

The principal may rescind any contract made on his behalf by the agent either without authority or in breach of his duties. The agent may be accountable to him for all damages resulting from the breach and maybe required to dislodge any secret commission, profit or advantage obtained. In Osman v Ralph Moss Ltd, the principal sued the agent, an insurance broker for damages for failing to keep him informed. It is pertinent to note that the agent owes the principal a duty to right information at when relevant.

3. Right to Demand for Account

He may take an action to compel the agent to render an account of all his dealings in respect to his agency or for any money had and received on his behalf, as it is a duty of the agent to act in good faith, putting principal’s interest first, as in the case of Akibola v Neburagho.

4. Right to Action for conversion

He may sue the agent for conversion where the agent has received property on his behalf and has misappropriated or misused it. As in the case of Boston Deep Sea & Lie Co v Ansell, where the agent was dismissed for dishonesty as he collected secret commission from third parties against his Principals knowledge.

5. Right to private prosecution

He may take out private summons against the agent where the agent’s conduct, act or commission is criminal.

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About the Author:

Fortune Nkemakola Dikio

Fortune Dikio is an avid writer. A level 300 student of Rivers State University, who’s receptive to knowledge.