CHAPTER FOUR

CONTRACT OF AGENCY

What is Agency?
In the Oxford Companion Law, the term agency is defined as: “The
relationship between one person, the agent, having authority to act,
and having consented to act on behalf of another, the principal, in
contractual relations with a third party. The term is also used more
widely as one acting in the interest of another”.
 FORMATION OF THE AGENCY
RELATIONSHIP
• Obviously, an agent is a person who has the authority to act in the
name and on behalf of another person called the principal.
• Authority, as regards the law of agency, means an ability on the part
of the agent to execute certain acts in the name and on behalf of the
principal, in accordance with the latter is manifestations of consent to
the agent.
• Generally, no formalities are required to create an agency; an agency
relationship can arise by the acts of the parties in one of the four
ways discussed in the following section.
 1. Agency by agreement

• we are referring to the agency arising out of bilateral agreements between principal and
agent.
• ‘’Agency is a contract where by a person, the agent, agrees with another person, the
principal, to represent him and to perform on his behalf one or several legally binding acts’’
• the rules applicable to the formation of a valid contract, are of necessity, applicable to the
agency relationship. Accordingly, the elements required under the law for the formation of a
valid contract as enumerated under the civil code are required in agency contract as well.
These elements are
• The parties must be capable of contracting and give their consent sustainable at law.
• The object of the contract must be sufficiently defined, possible, and lawful.
• The contract must be made in the form prescribed by the law, if any.
 1. Agency by agreement
• Therefore, the formation of a valid agency relationship requires the
existence of certain essential elements. If these elements are not
satisfied, the agency relationship becomes invalid. Accordingly, parties
to the agency relationship must have the capacity to enter into the
contract, their consent must be sustainable at law, the object of the
contract of agency relationship must be sufficiently defined, possible
and lawful, and finally the contract of agency must be made in a
prescribed form if any.
 2.Agency by ratification

• On occasions’, a person who is in fact not an agent may make a

contract a contract on behalf of another (principle). If the principle
approves or affirms that a contract by word or by an action, an agency
relation is created by ratification. Ratification is a question of intent,
and intent can be expressed by either words or by conduct.
 3.Agency by estoppel

• This when a principle causes a third person to believe that another

person is his/her agent, and the third persons deals with the
supposed agent ,the principle “estoped to deny” the agency
relationship. However in such a situation, the principles actions create
the appearance of an agency that doesn’t exist in fact.
 4.Agency by Operation of Law.

• In most cases, the source of agency is authority of an agent derived

from the agreement of the parties, that is, a bilateral agreement
between a principal and an agent. Apart from this usual source,
agency relationship could emanate from the operation of the law, that
is, agency authority is derived from the law itself. Consequently, the
consent of the principal has no role in creating the agency
relationship. This usually happens where a person to be represented
is not in a position to appoint his agent for one thing or another.
Moreover, it is due to the necessity to safeguard the interest of the
person to be represented.
 SCOPE OF AGENT’S AUTHORITY
1. General Agency
General agency relates to preservation/maintenance of those affairs/
rights of the principal. A general agent is given the power to do a
number of transactions involving a continuity of service. A person,
conferred with agency in general terms is only empowered to sustain
the rights of the principal.
 SCOPE OF AGENT’S AUTHORITY
2. Special Agency:-A special agent is a person who is given power by
the principal to act in a particular transaction. Usually, it does not
involve continuity of services unlike general agency. For example, an
agent empowered to deliver a truck to a third party is a special agent.
In the case of special agency the act to be performed by the agent is
specifically provided, like: sale of a house, lease of a land etc.
 SCOPE OF AGENT’S AUTHORITY
3. Actual or real authority
• 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.
• Therefore, the actual or real authority of the agent described as the
legal relationship which subsists between the principal and the agent
created by consensual agreement to which they alone are parties
 SCOPE OF AGENT’S AUTHORITY
4. Apparent 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.
• Finally we might understand from the above definition that an apparent
authority is not an authority arising from the consent of the principal whether
express or implied according to the rules discussed in the preceding section.
 LIABILITY AND REMEDIES AVAILABLE
THE PRINCIPLE AND AGENT

Liability and remedies of the Principal

• The principal is only liable in contract for things done or actions taken
within the actual (real) or apparent authority of the agent.
• However, to make the principal liable, the act of the agent must have
been committed in the course of the agent’s employment. Thus,
where it was established that the agent was on a frolic of his own, it
was held that the agent was not in the course of his employment and
therefore the principal was not liable.
 LIABILITY AND REMEDIES AVAILABLE
THE PRINCIPLE AND AGENT

Remedies Available to the Principal

• In situations where the agent by some misconduct or otherwise
commits a breach of a term of his principal will have number of
remedies stated below.
• 1. Dismissal: The principal may determine or bring the agency
relationship to an end or otherwise dismiss the agent from his
employment without notice.
• 2. Rescission and Damages: The principal may also rescind any
contract made on his behalf by the agent without authority or in
breach of his duty and this may include claims for damages.
 LIABILITY AND REMEDIES AVAILABLE
THE PRINCIPLE AND AGENT

Liability and remedies of the Agent

• In situations where a third party suffers a loss, damage or injury as a result of
the wrongful act or omission of the agent remains liable to him personally..
• Remedies Available to the Agent
• Where the agency relationship is established by contract and the principal
commits a breach of a term of his agency contract, the agent has remedies
ordinarily available to a contracting party under the general law of contract.
• Damages: The agent may sue the principal to recover any loss or injury he
may have suffered as a result of the principal’s failure to perform any of his
duties under the agency arrangement.
 GENERAL DUTIES OF AGENT AND
PRINCIPLE
Duties of agent to the principle
1. Duty to Perform
2. Duty of Obedience or Loyalty
3. Duty of Care and Skill
4. Duty of Personal Performance
5. Duty to Act in Good Faith
6. Duty to Account
 GENERAL DUTIES OF AGENT AND
PRINCIPLE
Duties of the Principal to the Agent
1. Duty to Remunerate
2. Duty of Re-Imbursement and Indemnity
 TERMINATION OF AGENCY

1. TERMINATION OF AGENCY BY ACTS OF THE PARTIES

Agreement between Principal and Agent
 Revocation by Principal
Renunciation by Agent
Modes of Renunciation
A. By a written instrument
B. By words of mouth.
C. By simply refusing to act.
 TERMINATION OF AGENCY
2. TERMINATION BY OPERATION OF LAW
a. By Performance
b. By Expiration of Time
c. By Frustration:- circumstances beyond the control of the parties, the
contract could terminated by one of the following
 becomes unlawful or illegal
 Ceases to exist by reason of government expropriation
 The principal or agent becomes an alien enemy.
 TERMINATION OF AGENCY
2. TERMINATION BY OPERATION OF LAW
D. By Death of Principal or Agent
E. By Insanity of Principal or Agent
F. By Bankruptcy of Principal or Agent
END OF CHAPTER
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