Creating Agency by Agreement

On of the basis of a contract, agreement is the consensus of the contracting parties to the terms and conditions of the proposed contract. The same principle applies to the formation of an agency agreement by express agreement or contract of the terms thereof. In commercial transactions, an agreement is the revelation of the intention of both the agent and the principal unequivocally to constitute such a relationship.

In AYUA V ADASU & ORS (1992)3 N.W.L.R. 598 Akanbi, JCA,

restated the law in the following statement of page 611 thus;

“In the ordinary law of Agency, the paradigm is that in which the agent and the principal agree that one should  act for the other. And the term “agency” is assigned  to  this basic principle which involves consent of both parties. It is therefore trite law that agency arises mainly from a contract or agreement between the parties express or implied”.

The basic element in this situation is a manifestation  by the principal  that the agent shall act for and on his behalf and an evidence of the agent’s acceptance of that undertaking.

On the part of the principal, there must be either an actual intention to appoint the agent or an intention inferable from his words or conduct. Where an agency relationship was set up through an agreement, such agreement must nonetheless possess all the essential pre-requisites or elements of a valid contract to be sustainable. To establish the existence of a valid contract therefore, the general rules of law of contract are applicable. These rules have been comprehensively treated in Module One. It is to be that the mere fact that a person was described as a “agent or  his relationship with another person described as “agent”  in  an agreement is not conclusive in law of such facts. Where such an agreement is by parole, proof would necessarily be essential for mere spoken words could easily be misunderstood or misinterpreted. The burden of proving the existence of such a relationship rests on the party who asserts it.

By express appointment by the principal

Generally an authority is conferred by the Principal to the Agent. If the agent exceeds this authority, then the principal will not be bound and the agent will be personally liable to the third party for breach of warranty of authority.

However the common law may extend the scope of the agent’s authority beyond this, to protect an innocent third party. The principal will then be bound to the third party, but the principal can sue the agent for overstepping his actual authority, if it’s a breach of the agency contract.

By implied appointment by the principal

The law can infer the creation of an agency by implication when a person by his words or conduct acts as if he has such authority and the principal acknowledges that he was entitled to act accordingly. Implied authority, is not specifically mentioned by contract but assumed or implied by the nature of the relationship, are presumed to be given to an agent if that authority is necessary to perform the duties or responsibilities otherwise assigned to the agent or representative.

For example where one person allows another person to order goods on his behalf and habitually pays for them, an agency may be implied. In such a case, he will be bound by the contracts as if he has expressly authorized them - Chan Yin Tee v William Jacks and Co. Where however, such an agreement is inferred, from conduct, the law demands that there must be some positive act from which such inference can be drawn.

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