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.