What is the Law of Agency?

The law of agency is a key area of commercial law that governs the legal relationship among one party known as an agent, another party known as the principal, and third parties.

Inter alia , the law of agency governs how an agency relationship is formed, the rights and duties of agents and principals, and how the agency relationship is terminated.

A proper understanding of the law of agency requires a definition of the term “Agency”. Section 1.01 of The Restatement (Third) of Agency defines an agency as “the fiduciary relationship that arises when one person (a "principal") manifests assent to another person (an "agent") that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.”

According to Friedman [1], agency is “the relationship that exists between two persons when one, called the agent , is considered in law to represent the other, called the principal, in such a way as to be able to affect the principal's legal position in respect of strangers to the relationship by the making of contract or the disposition of property.”

Key Elements of the Definition:

The following elements of the definition shall be further discussed:

1. Principal

2. Agent

3. Consent or assent

4. Fiduciary relationship

5. Affect the principal's legal position in respect of strangers to the relationship.

Principal:

The principal is a person or entity that gives authority to another person/entity or allows that other person/entity, called an agent, to act on his behalf in relation to third parties. For example, in the case of Agbemashior and Others v State Insurance Corporation and Others, the plaintiffs allowed and authorized the third defendant, an insurance claims agent, to act on their behalf in making a claim for compensation against the State Insurance Corporation. By allowing the third defendant to act on their behalf in relation to the State Insurance Corporation (a third party), the plaintiffs became principals.

Essentially, the principal may be an individual, a corporation, a government agency inter alia.

Agent:

An agent is a person or entity who acts on behalf of another or represents another in relation to third parties. In the case of Agbemashior and Others v State Insurance Corporation and Others , the insurance claims agent acted on behalf of the plaintiffs and therefore became their agent. . In the case of E. Sfeir & Co v National Insurance Company of New Zealand, Ltd. Per Glyndova (Ghana) Ltd. , a company, called Glyndova (Ghana) Ltd. acted on behalf of the National Insurance Company of New Zealand and processed insurance claims from their customers on their behalf. Glyndova (Ghana) Ltd. was thus considered the agent of the National Insurance Company of New Zealand.

Consent or Assent of Both Principal and Agent:

Generally, the agency relationship is based on the consent of the principal to have the agent represent him, and the consent of the agent to represent the principal. The basic understanding underpinning this idea is that a person cannot force another to act on his behalf, and that a person cannot forcefully represent another without the person’s consent. However, instances may arise where the principal’s consent is not needed to act on his or her behalf (such as the agency of necessity).

The consent of parties may be express or implied. A principal may expressly demand that another person acts on their behalf, and this was the case in E Sfeir Co v National Insurance Company of New Zealand, Ltd Per Glyndova (Ghana) Ltd., where the principal wrote a letter to Glyndova (Ghana) Ltd. stating “we should appreciate it if you would act as our claims settling agents should the necessity arise”. In the case of Buama v Oppong, however, no such express request was made by the defendant that a bookman stationed at a lorry station should act as his agent, yet the court held that the defendant had impliedly consented to the bookman to act as his agent.

Agency as a Fiduciary Relationship:

A fiduciary relationship is simply one where a party, known as the fiduciary, acts for the benefit and in the interest of another to whom fiduciary duties are owed. In an agency context, the agents owe fiduciary duties to their principals and must act in the interest of the principals. The case of Bristol and West Building Society v Mothew is famous for its characterization of what fiduciary duties entail. Per Millet LJ, the most essential fiduciary obligation is that the agent must be loyal to the principal. This duty of loyalty has several facets:

1. The fiduciary must act in good faith

2. He must not make a profit out of his trust

3. He must not place himself in a position where his duty and his interest may conflict.

4. He may not act for his own benefit or for the benefit of a third person without the informed consent of his principal.

An agent who acts contrary to any of the above rules is said to have breached his fiduciary duties.

Affect the Principal's Legal Position in Respect of Strangers to the Relationship:

An essential characteristic of agency relationships is that the agent acts on behalf of the principal to affect the principal’s legal relationship with third parties. For instance, an agent can enter into a contract with a third party on behalf of the principal, and it would be considered as if the principal had entered into the contract himself.

The Rationale for agency

The main rationale for agency is that a person cannot accomplish all his tasks by himself. Owing to time constraints, geographical limitations, and lack of skills or qualifications inter alia, a person may need another person to act on his or her behalf.

When a person authorizes another person to act on his or her behalf, the acts of that person are considered as if they had been done by the person giving the authorization. This principle is embodied in the maxim: Qui facit per alium facit per se, which literally means that “a person who acts, or does anything by or through another does that thing by himself.” In the case of Commodore v Fruit Supply (Ghana) Ltd, Kingsley-Nyinah J.A described the agent of the respondent company as the “alter ego” of the respondent company. An alter ego is a person’s secondary or alternative personality and is usually considered a part of the self. By acting through an agent, a principal is considered to be acting through his secondary or alternative personality.

Agency Versus Other Forms of Commercial Arrangements:

The distinction between agency and other types of commercial arrangements shall be drawn based on definition, example, and the role of the parties. The following commercial arrangements shall be considered.

1. Agency versus Bailment

2. Agency versus Trust

3. Agency versus Sale

4. Agency versus Distributorship & Franchising

5. Agency versus Independent Contractor arrangements

Agency versus Bailment

i. Definition of Bailment: A bailment is a legal relationship where one party, known as a bailor, transfers the possession of property to another party, known as the bailee, for holding or for use in a particular manner. Essentially, the bailor still has ownership of the property and merely transfers possession of the property to the bailee. See the definition of agency supra.

ii. Example of Bailment: A common example of bailment is warehousing. A person may transfer possession of goods to a warehouse for safekeeping. In the case of Busi & Stephenson (Ghana) Ltd v Opoku, the defendant was a clerk employed by the plaintiff and tasked to receive cocoa for his employees. There was no written employment contract. When the defendant failed to account for 709 bags of cocoa which went missing, he contended that in the absence of any written employment contract, he was merely a servant and could not be responsible for the losses. The court held that on receipt of the cocoa, the defendant became a bailee and owed a duty to the bailor to exercise some degree of care in respect of the goods. The defendant was considered a bailee because he only took possession and not ownership of the cocoa.

iii. Key Distinctions between Agency and Bailment: In bailment, the bailee does not alter the bailor’s legal relations with others, whereas in agency an agent can alter such relationship. In bailment, the bailee does not represent the bailor, unlike in agency where the agent represents the principal. Finally, the bailment relationship is created by the transfer of possession of property to the bailee, whereas in agency no such transfer of property is necessary.

Agency versus Trust

i. Definition of Trust: A trust is a fiduciary relationship where one party, known as the trustor, gives another party, known as the trustee, the right to hold title to a property or asset, for the benefit of another party known as the beneficiary.

ii. Example of Trust: A terminally ill man may transfer the title to his property to his sibling to hold in trust for his infant children and transfer same to those infant children when they are of age.

iii. Key Distinctions between Agency and Trust: A trustee must have legal title to the property held in trust. In an agency relationship, however, the principal retains legal ownership of his property. In addition, an agency normally ends upon the death of the agent or principal, but this is not the case in a trust. Lastly, an agent acts on behalf of the principal whereas a trustee acts in his own right.

Agency versus Sale:

i. Definition of Sale: A sale involves the transfer of title and possession of property from the seller to the buyer for monetary compensation.

ii. Example of Sale: A real estate company may transfer title and possession of a piece of land to another person or company for money.

iii. Key Distinctions between Agency and Sale: In a sale, the owner will not be liable to the third party if the seller fails to act diligently and skilfully, whereas in agency, the principal will be liable to the third party if the agent does not act diligently and skilfully. Also, in a sale, the owner is usually not privy to the transaction between the buyer and the seller, whereas in agency the principal is privy to the transactions between the agent and the third party.

Agency versus Distributorship

i. Definition of Distributorship: A distributorship is a legal arrangement that allows a company or person, known as the distributor, to sell another company’s products or services to others.

ii. Key Distinctions between Agency and Distributorship: Under a distributorship, the distributor takes ownership of the product and sells it on their own behalf to their own customers and for their own benefit. Under an agency, however, the agent acts on behalf of the principal and not on their own behalf.

Agency versus Independent Contractor Arrangements

i. Definition of Independent Contractor: An independent contractor is a self-employed person or entity who works or provides services to another.

ii. Key Distinctions between Agency and Independent Contractor Arrangements: The main difference between an agent and an independent contractor is the degree of control. Independent contractors are usually thought of as experts in their area of work and are only tasked to deliver a particular product at the end of their work irrespective of the processes they adopt in producing that end product. However, an agent may be given directions on the processes they must employ in their dealings with third parties. Further, an independent contractor is liable for their own acts, whereas a principal is usually liable for the acts of their agent.

Note, that except in the case of a sale, the above commercial arrangements are not mutually exclusive with an agency relationship.