UKPANAH V. AYAYA (2011) 1 NWLR [PART 1227] 61 AND Samuel Osigwe vs. Privatization Share Purchase Loan Scheme Management Consortium Ltd & Ors (2009) 3 NWLR (Pt. 1128) 378

This work simply tries to argue that an agent can still be liable third parties even when the principal is disclosed. Under the modern practical American commercial law, another rule of liability for an agent is “Warranty of Authority” rule:  Occasionally an agent attempts to act for a principal when he possesses no power to bind the latter. In such instances he may or may not be aware of the limitation of his power; he may honestly think his authority extends to the act complained of, or he may be, well aware that he was never appointed an agent. In either event he becomes liable to third parties for the damages resulting from his failure to bind the principal. The result from the breach of an implied warranty is that every agent that impliedly warrants to third parties that he possesses if power to affect their legal rights remains liable even if the principal is disclosed.

Generally, theagent seldom incurs any liability to the third party upon contracts entered into for a known principal. In such cases he negatives any personal responsibility by a proper execution of the contract. Only if the agent carelessly executes a written agreement may he find himself bound by the contract. To use an illustration suggested previously, the agent who signs a negotiable instrument for his principal, but fails to indicate clearly the principal's existence and his relation to the instrument, is personally liable.
In recent times, two major landmark cases have considered the liability of an agent where his principal is disclosed under Nigerian commercial law.

a.  Samuel Osigwe vs. Privatization Share Purchase Loan Scheme Management Consortium Ltd & Ors (2009) 3 NWLR (Pt. 1128) 378
The first is Samuel Osigwe vs. Privatization Share Purchase Loan Scheme Management Consortium Ltd & Ors (2009) 3 NWLR (Pt. 1128) 378
In the Osigwe case, Osigwe had filed a class action before the Investment and Securities Tribunal (“the IST”) claiming damages from the fact that the Privatization Share Purchase Loan Scheme Management Consortium Ltd (“the Consortium”) did not file appropriate statements with the Securities and Exchange Commission (“SEC”) and that, as a result, the Consortium’s share acquisition scheme did not proceed as was promised with the investors, including Osigwe suffering damages.

The Consortium filed a Notice of Preliminary Objection to the suit, claiming that the Consortium was an agent of a disclosed principal, i.e., that the Consortium represented the Nigerian Bureau of Public Enterprises (BPE). In other words, the sole proper defendant—the BPE, was not a party to the suit, making the suit incompetent. The IST sustained the objection, and Osigwe appealed all the way to the Supreme Court which considered a plethora of common law decisions of the non-liability, and reiterated that the agent of a disclosed principal can not be liable in so far as the principal was disclosed. According to Nigerian Supreme Court Judge, Musdapher, JSC who gave the lead judgment:

 “Again, it is clear from the appellant’s pleading that each of the respondents herein are merely agents of the BPE solely appointed for the registration of would be purchasers of the shares of the public companies to be privatized. The respondents also by the pleading of the appellant, are unmistakably agents of a revealed principal and as agents, they cannot be liable under all the circumstance of this case. See Okafor V. Ezenwa (supra) ... An agent acting on behalf of a known and disclosed principal incurs no personal liability. See Niger Progress case (supra)”.

b.  UKPANAH V. AYAYA, (2011) 1 NWLR [PART 1227] 61 
Next came the Nigerian Court of Appeal Decision in UKPANAH V. AYAYA (2011) 1 NWLR [PART 1227] 61. In Ukpanah, the facts are straightforward, Ukpanah took a long lease on a piece of land from Ndidem Edim Imona, the Ntoe of Big Qua who was a prominent traditional ruler in Calabar, in Cross River State.  After lease agreement was executed, Ukpanah took possession. 30 years later, the Big Qua Community attempted to terminate the lease. 2 years later, i.e., in 2005, acting furtherance to the lease termination, the Big Qua Community engaged Mr. Ayaya, a licensed surveyor, to carry out a survey of the land. Ayaya was later paid off for his services by the Big Qua community.
For some reasons unknown, Ukpanah proceeded against Ayaya for damages for trespass, when it is clear that Ayaya never claimed to be an owner of the land. The suit was also dismissed as lacking merit because Ayaya was an agent of a disclosed principal.

In Scotland, in the case of Halifax v DLA Piper [2009] CSOH 74, where although the main focus of that case was the potential liability of an agent acting on behalf of a non-existent principal, Lord Hodge left open the possibility of a further action between the same parties on the grounds of breach of warranty of authority.  The Halifax case later settled.
The first case to clearly establish the warranty of authority rule was Frank Houlgate Investment Company Limited v Biggart Baillie LLP [2009] CSOH 165. This was a case concerning the conduct of a fraudster who obtained sums from the pursuer for investment in a company known as Securimax.  An initial £100,000 was advanced, and a further £500,000 was to be advanced subject to the grant of a standard security over the fraudster's "ancestral estate" which was, according to the fraudster, Balbuthie Farm in Fife.  The standard security was executed and registered.  Eventually, the pursuer discovered that all was not well on reading an article in an evening newspaper which included a picture of the fraudster and a report of his conviction for fraud.  On telephoning the ancestral home, the pursuer discovered that the fraudster was not the registered owner of that property.  Additionally, it transpired that the fraudster had forged the pursuer's signature on a discharge of the standard security and arranged for registration of the discharge in the Land Register.  In arguing for the alternative ground of breach of warranty of authority, Lord Drummond Young quoted the definition of this rule appearing in Bowstead & Reynolds on Agency (16th edn, 1996, cited with approval in Penn v Bristol & West Building Society, [1997] 1 WLR 1360):
 "Where a person, by word or conduct, represents that he has authority to act on behalf of another, and a third party is induced by such representation to act in a manner in which he would not have acted if that representation had not been made, the first-mentioned person is deemed to warrant that the representation is true, and is liable for any loss caused to such third party by a breach of that implied warranty, even if he acted in good faith, under a mistaken belief that he had such authority."  

In Frank Houlgate Investment Company Limited v Biggart Baillie LLP, the pursuers had based their argument on the fact that the solicitor had represented that he had authority to act on behalf of the registered owner of the land in question, over which the standard security was granted.  Lord Drummond Young swiftly rejected this argument [para 27]:
"What is significant in the formulation of the principle, however, is that the supposed agent, A, represents that he has authority to act for B in a particular transaction, with the result that the third party, C, is induced to act on that representation.  Thus the representation relates to the person for whom the supposed agent purports to act.  It does not relate to the capacity in which that person, the supposed principal, will enter into the transaction, or as to the property that person holds, or as to that person's title to any property."

Applying these principles of law to the facts of Frank Houlgate Investment Company Limited v Biggart Baillie LLP case, the solicitor had not breached his warranty of authority - he had been authorised by a particular client to act on his behalf.  Whether or not that client had good title to the land was irrelevant in the context of the assessment of a possible case of breach of warranty of authority, and the pursuers therefore failed to establish a relevant case in this respect.

The rule of breach of warranty of authority was recognized in Singh & Anor v Sardar Investments & Ors [2002] EWCA Civ 1706. There, A negotiated the sale to T of property owned by P, claiming to be authorized to act on P's behalf. P denied that A was authorised and T now claimed against A for breach of warranty of authority. The Court of Appeal held that although A was in breach of warranty of authority.

In the United States, under Pennsylvania law for instance, this implied warranty of authority constitutes a basis for personal liability on a contract. See Kribbs v. Jackson, 387 Pa. 611, 623-24 (1957). In Kribbs, the Supreme Court of Pennsylvania adopted § 329 of the Restatement (Second) of Agency, which states in pertinent part:

“A person who purports to make a contract, conveyance or representation on behalf of another who has full capacity but whom he has no power to bind, thereby becomes subject to liability to the other party thereto upon an implied warranty of authority, unless he has manifested that he does not make such warranty or the other party knows that the agent is not so authorized.” Id.; Kribbs, 387 Pa. at 623-24.

Clearly, The American Restatement (Second) of Agency, § 329, grounds personal liability on the implied condition that an agent has the authority to enter into the contract on behalf of a principal, not on any express promise to guarantee the debt.

4. When Agent Bound On Sealed Instruments By The Form Of His Execution
Finally, it is a long established rule that only those who are named or described in and sign a sealed instrument are bound thereon. If the agent signs his own name only, though he describe himself as agent, he will be bound and the principal will not be bound. By the law of sealed instruments, only those can be sued thereon who are parties thereto? An agent may, by careless execution of a sealed instrument, bind himself when he intended only to bind his principal.

5. Conclusion 
The evolving commercial law rules may, in certain circumstances, as we have seen above, mandate that the agent be liable even when the principal is disclosed. We look forward to when the appropriate case will arrive before the Nigerian Supreme Court for a clear definition of rules of agency liability under Nigerian commercial law
Share on Google Plus


The publications and/or documents on this website are provided for general information purposes only. Your use of any of these sample documents is subjected to your own decision NB: Join our Social Media Network on Google Plus | Facebook | Twitter | Linkedin