AGENCY Lesson Note
LEARNING OBJECTIVES
This SS3 COMMERCE lesson note covers AGENCY for First Term, Week 3.
Lesson Note
LEARNING OBJECTIVES
At the end, students should be able to:
1. Definition of Agency
2. Types of Agents
3. Appointment of an Agent
4. Duties and Rights of a Principal
5. Termination of an agent
6. Duties of an Agent to the Principal
A. MEANING OF AGENCY
Agency is a legal relationship in which one person, called the agent, is authorized to act on behalf of another person, called the principal, in dealing with third parties.
An agent is a person who is given the authority by the principal to enter into a contract on his behalf
B. IMPORTANT TERMS
1. Principal: The person who authorizes another person to act on his or her behalf.
2. Agent: A person appointed by the principal to act on the principal's behalf.
3. Third Party: A person with whom the agent deals on behalf of the principal.
Example
If Mr. Ade asks Mr. Bello to purchase goods from a supplier on his behalf, Mr. Ade is the principal, while Mr. Bello is the agent. The supplier is the third party.
C. TYPES OF AGENCIES
The major types of agencies include:
1. General Agency
A general agent is an agent who has the authority to act in all matters of a business he can perform any of the duties which are within the scope of a particular business
2. Special Agency
A special agent is appointed to perform a specific task or a particular transaction.
3. Del Credere Agency
A del credere agent is an agent who, undertakes to indemnify the principal against any loss arising from the failure of the people to pay for the goods sold
4. Broker
A broker is an agent who brings buyers and sellers together and usually negotiates transactions on behalf of the principal.
5. Factor
A factor is an agent who is generally entrusted with possession of goods and may sell them on behalf of the principal according to the authority given.
6. Commission Agent
A commission agent buys or sells goods on behalf of a principal and receives commission for the service.
D. APPOINTMENT OF AN AGENT
An agent can be appointed in several ways:
1. By implications an agent can be appointed impliedly where the principal with out expressly conferring authority on him places him in a situation in which it is understood by them that he can act on behalf of the principal
2. Expressly this arises when an agent is appointed verbally or in writing by the principal the agent can enter into contract on behalf of the principal
3. Agency by Estoppel
This arises when the principal, through words or conduct, causes a third party to believe that someone is his agent and then cannot fairly deny that representation in the circumstances.
4. Agency by Necessity
This may arise in exceptional circumstances where a person must act on behalf of another to protect the other's interests, even without prior authority.
5. Agency by Ratification
This occurs when a person acts on behalf of another without prior authority, but the principal later approves or adopts the act
E. DUTIES OF A PRINCIPAL TO AN AGENT
The principal has certain obligations towards the agent.
1. Payment of Remuneration
The principal should pay the agent the agreed commission, salary or other remuneration where applicable.
2. Reimbursement of Expenses
The principal should reimburse the agent for reasonable expenses properly incurred while carrying out authorized duties.
3. Indemnity
The principal should compensate or indemnify the agent for authorized acts properly performed in carrying out the agency, subject to the terms of the relationship and applicable law.
4. Providing Necessary Information
The principal should provide the agent with information and instructions necessary for carrying out the assignment.
5. Cooperation
The principal should cooperate with the agent and should not unnecessarily prevent the agent from performing authorized duties.
F. RIGHTS OF A PRINCIPAL
The principal has the following rights:
1. the principal can sue the third party for damages
2. The principal can sue the agent for default
3 he can recover any secret profit from the agent
4 he can dismiss the agent
5 he can refuse to pay the agent his agreed sum
G. TERMINATION OF AGENCY
Termination of agency means bringing the relationship between the principal and agent to an end.
Agency may be terminated in the following ways:
1. By Mutual Agreement
The principal and agent may agree to end the agency relationship.
2. By Death
In appropriate circumstances, the death of the principal or agent may terminate the agency, particularly where the authority is personal to the parties.
3. By Insanity or Incapacity
Certain forms of agency may end where the principal or agent becomes legally incapable of continuing the relationship.
4. By Bankruptcy or Insolvency
In some circumstances, bankruptcy or insolvency may affect or terminate an agency relationship, depending on the nature of the agency and applicable law.
5. By Frustration or Illegality
An agency may end where circumstances make its continued performance impossible or unlawful.
6. By breach:
The principal or agent can breach the terms of agreement hence the agency is automatically terminated in such a situation
H. DUTIES OF AN AGENT TO THE PRINCIPAL
An agent owes several duties to the principal.
1. Duty to Obey Instructions
The agent must follow the lawful instructions given by the principal.
2 Duty of Loyalty
The agent must act honestly and in the best interests of the principal.
3 Duty to Account
The agent must keep proper records and account for money and property received on behalf of the principal.
4 Duty to Avoid Conflict of Interest
The agent should not allow personal interests to conflict with the interests of the principal.
5. Duty of Confidentiality
The agent should not improperly disclose confidential information obtained while acting for the principal.
6 Duty to Communicate
The agent should communicate important information relating to the agency to the principal.
Evaluation
OBJECTIVE QUESTIONS
1. Agency is a relationship in which one person acts on behalf of another person known as the:
A. Creditor
B. Principal
C. Debtor
D. Customer
2. A person authorized to act on behalf of another person is called an:
A. Agent
B. Employer
C. Offeree
D. Creditor
3. The person who appoints an agent is known as the:
A. Third party
B. Principal
C. Broker
D. Factor
4. Which of the following is a type of agent?
A. Special agent
B. Consumer agent
C. Retail agent
D. Government agent
5. An agent appointed to perform a particular task is called a:
A. General agent
B. Special agent
C. Del credere agent
D. Universal agent
6. A general agent is one who is authorized to:
A. Perform only one specific transaction
B. Perform a range of transactions within the authority given
C. Act without authority
D. Work only for the government
7. A del credere agent guarantees, subject to the terms of the arrangement, the:
A. Delivery of all goods
B. Performance or payment obligations of certain third parties
C. Employment of workers
D. Payment of taxes
8. Which of the following is a method of appointing an agent?
A. By estoppel
B. Forced appointment
C. Illegal appointment
D. Automatic appointment
9. When an agent is appointed directly by spoken or written words, the appointment is known as:
A. Implied appointment
B. Express appointment
C. Agency by necessity
D. Agency by ratification
10. Agency arising from the conduct or circumstances of the parties is known as:
A. Implied agency
B. Express agency
C. Special agency
D. Illegal agency
Theory Questions
1a. Define agency.
1b. Who is a principal?
2a. Who is an agent?
2b. State five types of agency.
2c. Explain three methods of appointing an agent