Topic 4

🟢 Lite — Quick Review (1h–1d)

Rapid summary for last-minute revision before your exam.

Topic 4 covers the law of agency in Nigeria. Agency is a relationship that allows one person (the agent) to create legal relations between another person (the principal) and third parties. Agency is commercially vital — every company director, employee, agent, and broker acts as an agent. Understanding agency is essential for accountants advising on who is liable in commercial transactions.

Key Definitions:

• Agent: A person authorised to act on behalf of another
• Principal: The person on whose behalf the agent acts
• Third party: The external party with whom the agent contracts
• Authority: The agent’s power to bind the principal — may be actual (express or implied) or apparent/ostensible

Creation of Agency: Agency may be created by:

1. Express agreement (oral or written; some must be written under statute)
2. Implication (arising from the conduct or relationship of the parties)
3. Ratification (principal adopts and confirms an unauthorised act)
4. Estoppel (by conduct, where a principal is precluded from denying the agent’s authority)
5. Necessity (in emergencies, where a person acts to preserve another’s property)

⚡ Exam tip: Ratification is a common ICAN topic — the agent must have contracted on behalf of a principal who was in existence at the time of the act, and the principal must have been identified (disclosed or identifiable).

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🟡 Standard — Regular Study (2d–2mo)

Standard content for students with a few days to months.

Types of Authority:

Actual Authority:

• Express: Clearly stated in words (oral or written)
• Implied: Inferred from the conduct of the parties, the nature of the business, and the position of the agent (Hely-Hutchinson v. Brayhead [1968])

Apparent (Ostensible) Authority: Where a principal creates the appearance of authority in an agent, the principal is bound even if the agent exceeded their actual authority — provided the third party reasonably believed the agent had authority (Rama Corporation v. Proved Tin [1952]).

This is based on the principle of estoppel: the principal is precluded from denying what they have allowed the agent to appear to possess.

Ratification:

Ratification occurs when a principal adopts and confirms an unauthorised act, making it retrospectively valid.

Requirements for Valid Ratification:

1. The agent must have acted as agent (not as principal)
2. The principal must have been in existence at the time of the act
3. The principal must have been identified (disclosed or identifiable)
4. The principal must have had contractual capacity at the time of ratification
5. The act must be ratifiable (not void ab initio — a void contract cannot be ratified)
6. Ratification must be communicated to the third party
7. Ratification must occur within the time limit allowed (before the contract is discharged)

Effects of Ratification:

• The contract becomes binding on the principal as if it had been authorised from the start
• The agent is relieved from personal liability
• The third party’s rights and obligations are confirmed

The Agent’s Duties to the Principal:

1. Skill and care: An agent must perform their duties with reasonable skill and care
2. Obedience: An agent must follow the principal’s lawful instructions
3. Personal performance: An agent must personally perform — they cannot delegate unless authorised (delegation = sub-agent)
4. Duty not to disclose confidential information
5. Duty to account: Agent must keep proper accounts and render them to the principal
6. Duty not to make a secret profit: Any profit made in the course of agency belongs to the principal
7. Conflict of interest: An agent must not put themselves in a position where their interests conflict with the principal’s

Secret Profits and Bribes: A bribe received by an agent belongs to the principal. The principal can:

• Sue the agent for the bribe
• Sue the third party for the bribe
• Dismiss the agent without notice
• Refuse to pay the agent any commission

The Agent’s Authority in Specific Situations:

Auctioneer: Has implied authority to sell goods and sign the memorandum of sale; authority to receive payment on delivery of goods; cannot receive payment before the sale is complete.

Estate Agent: Has authority to find a purchaser/tenant; has no authority to sign contracts on behalf of the vendor/landlord.

Company Directors: Directors have actual authority to bind the company in contracts within their board’s authority; and apparent authority to bind the company in contracts within the company’s normal course of business (as understood by third parties).

Del Credere Agent: An agent who guarantees the performance of the third party (e.g., a factor who guarantees payment by customers). The del credere commission compensates for this guarantee.

Commercial Agents (Nigeria): Under the Commercial Agents Registration Act and regulations, commercial agents (who introduce customers and solicit orders) have rights to:

• Written terms of engagement
• Commission on sales
• Compensation upon termination (after 5+ years)

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🔴 Extended — Deep Dive (exam-level mastery)

For students preparing for top-rank selection.

The Doctrine of Identified Principal:

The rule is that for ratification to be valid, the principal must have been identified at the time of the act — not necessarily named, but identifiable (Keighley Maxsted v. Durant [1901]; applied in Nigeria). If the agent intended to act for an unidentified group or a company not yet incorporated, ratification is not possible (a company cannot ratify a contract made before its incorporation — Cotronic v. Dezonie).

Undisclosed Principal:

An undisclosed principal is one whose existence is not revealed to the third party. The general rule is that the undisclosed principal can intervene and sue or be sued on the contract (Sims v. Bond [1833]; applied in Nigeria).

Rights of Undisclosed Principal:

• Can sue the third party on the contract
• Can be sued by the third party (subject to the defence that the third party had a personal defence against the agent — e.g., set-off)

The Third Party’s Rights: The third party can sue the undisclosed principal if the principal intervenes. However, if the third party obtained judgment against the agent, they cannot then sue the undisclosed principal.

Estoppel and the Third Principle:

Where a principal’s conduct (or omission) leads a third party to reasonably believe that an agent has authority, the principal is bound — even if the agent actually had no authority (Freeman & Lockyer v. Buckhurst Park Properties [1964]; applied in Nigeria).

Elements:

1. A representation that the agent has authority
2. The representation was made by or attributable to the principal
3. The third party relied on the representation
4. The third party suffered loss

Watt v. Information Exchange Corp [2010]: An agent who exceeds their actual authority but acts within apparent authority binds the principal.

Personal Liability of the Agent:

An agent is personally liable on contracts they enter:

1. When they act for an undisclosed or unnamed principal
2. When they act for a principal who lacks capacity
3. When the agent signs a negotiable instrument in their own name
4. When the agent acts outside their authority and the principal does not ratify
5. When the agent guarantees performance (del credere)

The Agent’s Warrant of Authority: An agent who exceeds their actual authority may be liable in the tort of “warrant of authority” — the agent warrants that they have the authority they purport to have (Yonge v. Toynbee [1910]). This is implied in every agency contract.

Termination of Agency:

Agency terminates by:

1. Agreement — parties agree to end the agency
2. Revocation — principal revokes the agent’s authority (subject to the agent’s rights to compensation)
3. Renunciation — agent gives notice of unwillingness to continue
4. Completion of the task
5. Expiry of the time period
6. Death or insanity of either party (this operates as automatic termination; not merely a right to terminate)
7. Destruction of the subject matter
8. Dissolution of a company (agent principal)

Effects of Termination:

• Actual authority terminates immediately
• Apparent authority may continue if the third party does not know of the termination — until notice is given

Notice to Third Parties: If the agency is terminated, the principal must give notice to third parties who dealt with the agent. Failure to notify third parties means the principal remains bound by apparent authority.

Mercantile Agent (Factors Act 1889): A mercantile agent (a factor) has possession of goods with the owner’s consent for sale. Under the Factors Acts (applied in Nigeria), a mercantile agent can pass good title to a third party even if the owner did not authorise the sale — provided:

1. The agent was acting in the ordinary course of business
2. The third party acted in good faith
3. The third party did not know the agent had no authority

This is the exception to nemo dat quod non habet (you cannot give what you don’t have) — an owner’s title prevails except in certain protected situations.