With the effects of globalization and the speed at which modern day business is done, it is almost impossible for individuals and corporations to be physically present for all business decisions taken, which may affect their interests. In such situations where they are unavailable, businesses are carried on with the use of agents, who proceed to act with authority, on their behalf.

Therefore, basic knowledge of the principle of agency, manner of creating and establishing a relationship of agency and the effects of such a relationship is vital for those involved in the commercial sector.

A person on whose behalf an act is done or to be done is called the principal; and the one who is to act is called the agent. Therefore, an agency relationship exists between two persons when one of whom expressly or impliedly consents that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly consents to so act. Where this occurs, the agent will have authority to act on behalf of the principal. The authority thereby created is either actual, express or implied authority.

In general, no formalities are required for the creation of agency, so unless otherwise provided by or pursuant to any statute, or by the terms of the power or authority under which the agent is appointed, an agent may be appointed by deed, by writing, or by word of mouth.

The simplest way in which an agency relationship arises both between principal and agent regarding third parties, is by an express appointment, whether written or oral, by the principal. Usually, the relationship of principal and agent may arise in any of five ways. An agency relationship can be created by express appointment whether orally or by a letter of appointment, by ratification of the agent’s acts by the principal, by virtue of the doctrine of estoppel, by implication of law in the case of agency of necessity and by presumption of law in the case of cohabitation.

Usually, in establishing and agency relationship, there is no rule that agency must be created by deed, or that an agent must be appointed by deed, except where the agent himself is to be empowered to execute a deed, and it seems that such a power could at common law be granted by simple writing.

Sequel to considering the formation of an agency relationship between a principal and an agent, the consequence and effect of establishing such a relationship is important most especially to the principal, as acts of the agent may affect the position of the principal. Where a principal appoints an agent to act on his behalf, the benefit or liability which may arise from any transaction arising out of the operation of the agency relationship generally accrues to the principal. The position of the law is clear that a person may decide to act by another as his agent and get the benefit or bear the liability of that arrangement as principal.

In a situation where an agent performs acts on behalf of his principal, but does not disclose this fact to third parties, the agent may be found personally liable. Where an authorised agent makes a contract in his own name, without disclosing the fact that he is acting on behalf of another, he can sue and be sued in his own name because he is then to all appearances the real contracting party.

However, in some circumstances, where there is a default, the agent may become directly liable while the principal may as well be liable. It has been held that the fact that a person is an agent and is known to be so does not therefore of itself necessarily prevent him incurring personal liability. Whether he does so, is to be determined by the nature and terms of the contract and the surrounding circumstances. An agent of a disclosed principal is not ordinarily personally liable on a contract he enters on behalf of the principal as it is presumed that the agent is acting on the authority of the principal. Therefore, an agent is not automatically absolved from liability for his actions as an agent, by virtue of the fact that he performed those actions on behalf of a disclosed principal.

In terms of agents acting on behalf of foreign principals, the law is that, where an agent contracts on behalf of a foreign principal, there is a presumption that he is incurring personal liability unless a contrary intention appears as dictated by the circumstances of that case. A person is liable for his engagements and also for his torts even though he is acting for another, unless he can show that by the law of agency, he is to be held to have expressly or impliedly negated his personal liability. See Asafa Foods Factory Ltd v Alraine Nig Ltd (2002) 12 NWLR (PT 781) 353.

Where an agent acts pursuant to an established agency relationship between a principal and the agent, it is reasonably foreseeable that the agent may in some circumstances, act beyond or outside the scope of the authority devolved to him by his principal. In dealing with this, generally, the position of the law is that any unauthorized tortuous or contractual act of the agent cannot bind the principal. In a situation where an agent acts beyond the scope of his authority, and his actions are not binding on the principal, the consequence is that the agent will be personally liable for all acts performed outside the scope of his authority, albeit purportedly on behalf of his principal.

However, notwithstanding this, unauthorized acts of an agent may still bind the principal where the principal proceeds to ratify the acts of the agent. The effect of ratification of an agent’s act is to put the parties concerned in the same position as that in which they would have been if the act ratified had been previously authorized by the principal.
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