Law of Agency: Scope of an Agent’s Authority

No doubt the proliferation and expansion of businesses today have had a positive impact on the business relationships of the principal, agent and third parties. As a result of advancement in technology and communication, an individual can have businesses of different kinds in various parts of the country or even across the border. This necessitates the appointment of a lieutenant or a subordinate who would assist the owner of the business to manage it. This has led to the relationship between a principal and an agent. In this article, we shall examine the scope of the agent’s authority in such circumstances.

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Definition of Agency

Agency is the consensual relationship which arises when a person called the agent acts on behalf of another called the principal whereby the latter becomes answerable for the lawful acts of the former, carried out within the scope of his authority, as to affect the legal relations between the principal and a third party.

There are two main points of note in the above definition. The first is that the agent becomes the intermediary, the go-between, the conduit-pipe or a middleman as far as the principal and the third party are concerned. Secondly, it is manifestly clear that agency relationship contemplates the execution of lawful transactions. The after-effect of such relationship is that the benefit of the transaction goes to the principal. Similarly, the principal bears the liability resulting from the transaction provided the agent acted within his authority.

It is important to distinguish between an agent and a servant. A servant is a person employed to render services under the instruction or direction of his master and accordingly the master is not liable for the contract of his servant. On the other hand, an agent is one generally employed or appointed to arrange contracts between the principal and third parties.

Authority of an Agent

An agent has different kinds of authority which he exercises in the course of the performance of his duties. These include the following:

Actual authority: This exists where the agent has been expressly instructed to act on behalf a principal. Actual authority is of two types. The first is the express actual authority is an explicit authority given to the agent to act on behalf of the principal. It may be withdrawn, suspended or modified at any time before the agent has executed it. The second is the implied actual authority which is the authority that can be inferred from the circumstances of the express agreement or from such matters as the customs or nature of trade or business which the agent is employed to transact.

Implied actual authority is of three types. One, incidental actual authority. As a general rule, every agent has the implied authority to do whatever is necessary for, or ordinarily incidental to, the effective execution of his express authority in the usual way. Thus, an agent expressly authorized to sell cars and entrusted with possession of the car has an implied authority to take potential buyers for test-drive and to fuel the car to do so. Similarly, an agent who is authorized to buy/sell land outside native law and customs is reasonably expected to sign necessary documents even though the principal did not expressly instruct him to do such because the signing of documents is an indispensable attribute of such sale of land.

Two, usual authority. This authority has to do with those things which similar agents usually or normally have authority to do. Its use relates to the notion of reasonableness and it has to do with an agent who belongs to an established trade, business or profession. An instance is the case of a Managing Director of a company. He is authorized to manage and conduct the company’s business and as such has the usual authority to pay out money in satisfaction of a rightful claim against the company. Therefore, a principal in this circumstance is liable for all the acts of the agents which are within the authority usually conferred on agents of that character. In this context, where the principal has expressly prohibited the agent from acting the way he did, he is still bound by the usual authority of the agent unless the third party had notice of the limitation.

Three, customary authority. Where an agent is employed to act for his principal in a certain place, market or business, then the agent is impliedly authorized to act according to the customs and practices of such place, market or business; and if such customs and practices are lawful and reasonable, the principal is bound, whether he is aware of them or not.

The difference between usual authority and customary authority is that whereas the basis of usual authority is an inference from the ordinary course of a particular trade, business or profession, the basis of customary authority is the custom and practice of a particular place, market or business.

Apparent authority: This exists where the principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent was authorized to act even if the principal and the purported agent had never discussed such relationship. An instance is where one person appoints a person to a position which carries with it agency-like powers, those who know of the authority are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably.

Presumed authority: This expression is usually used to describe the authority of an agent in two cases where agency is created by operation of law, namely: authority presumed from cohabitation and agency of necessity. The former situation may arise where a husband and wife live together and maintain a household establishment, especially where the wife is a full-time housewife. She can act on behalf of her husband as his agent in matters of necessaries and the husband is bound to take responsibilities. Even where there is no legitimate marriage but there is cohabitation, agency can result from that, this authority is said to be presumed. Necessaries here are referred to goods that are really necessary and required by the woman for her use having regard to her station in life. This will include items of food, clothing and household utensils.

In the case of agency of necessity, the authority results from emergency situations. An agency of necessity arises when, in emergency conditions, a person is obliged to act in order to prevent irreparable loss to another. Such an agency is implied by law to exist in certain circumstances where, for example an agent makes a sale of perishable goods before time, due to the circumstances surrounding him. This would be binding on the principal.

In this article, we examined the meaning of agency, the various types of authority and the extent to which an agent can exercise his powers. It is worthy to note that there is a fiduciary relationship between the principal and the agent; this is so because the principal trusts the agent enough to confer authority on him to act on his behalf. An agent is a middleman or conduit-pipe between a principal and a third party; as such, if in the cause of carrying out his duties he incurs benefits or liabilities, these would be attributable to the principal as long as the agent acted within the scope of his authority.

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17 comments on “Law of Agency: Scope of an Agent’s Authority
  1. bossdemuyi says:

    Good write up! I agree with Adaora’s position here because in our ever dynamic world where businesses expand and operate within various jurisdictions there is the need for agents who are appointed to act within the principal’s authority to be fully aware of their roles in order to effectively carry out their work. So the above article will help expand not only the agents knowledge on what he ought to do but also give the principal and the intending 3rd party an opportunity to get themselves enlightened too.

  2. bossdemuyi says:

    I have a question for you Adaora: what will be the correct position if the agent is acting on behalf of a foreign/non-indigenous principal?

  3. suzy says:

    Adora, nice article. I agree with you.

  4. Akan Unaam Jnr. says:

    Bravo! A wonderful and well delivered article on “The Scope of an Agent’s Authority” and I align myself with this piece. However, I humbly request for clear cut distinction between the terms; ‘Incidental Authority’ and ‘Agency of Necessity’. Thank you.

    • Jerry says:

      @Bossdemuyi, in a situation involving a foreign principal, Ebenezer ORUMWENSE in one of his works, noted that there is a presumption that the intention is to bind the agent and not the (foreign) principal, which brings about the general rule that a foreign principal cannot sue or be sued for a contract made by his agent in Nigeria. He further stated that the rationale behind the general rule is understandable based on the fact that the third party can only see the agent and not the (foreign) principal. If it is expressly agreed between the agent and the third party that the contract would establish a privity of contract between the (foreign) principal and the third party or where such intention could be inferred, the agent has no liability in the contract.

      Also in her remark, notwithstanding the commercial convenience that this principle may create in some circumstances, Olivia Arusuraire is of the view that in any case, the principal (as in the basic rule in the law of agency), should always be liable for the agent’s action where he’s acting within the scope of his authority.

  5. Jerry says:

    @Akan, the former usually arise when an agent does something that may not have been expressly stated yet it is commonly allowed, and necessary for the performance of his duty. While the latter is where there is an emergency situation requiring immediate action and the principal cannot be reached at the point in time. The examples given by Adora are good enough.

  6. misan says:

    “The Scope of an Agent’s Authority”, nice article Adora. In addition,technology and communication as you cited have an impacted on the economy of the country. Licensed third party agents would benefit from large companies or associations; for example, electronic gadgets such as an IPHONE which has third party applications (Facebook, Instagram, Youtube etc) which gets its revenue from the application been used by agents. However, an agent would have the same rights as any other member of the public if they are harmed by the principal.

  7. ifunanya says:

    Nice one Adaora.

  8. Jerry says:

    @Misan, I don’t seem to get your point even though I had to read through over and over again. Interestingly, Adora never mention some of the observations you noted. What do you mean by licensed third party agent? How do they benefit from large companies like electronic gadgets such as IPhone with third party applications as you said? How is its revenue from the application being used by agents? And please in addition, try to expatiate on your last sentence. Thanks

  9. suzy says:

    @Misan, try and improve. You still try in your own view.

  10. Aken says:

    Nice article Adaora. That was sufficiently intellectual and easy to comprehend.

  11. sotysunshine says:

    @Adora, your article is straightforward and self-explanatory. Nice one!

  12. Anyanwu Somtochukwu says:

    To add to Adora’s article: If an agent conceals a material fact, the ratification of the principal that is made in ignorance of such fact is not binding.

    An agent’s implied authority to perform any act reasonably necessary to execute express authority is called incidental authority.

    A third person dealing with an agent should determine the extent of the agent’s authority by asking the principal.

    An agent’s duty of loyalty to the principal is breached by the agent accepting a secret gift from a third person in connection with the agency, the agent acting as agent for both parties to a transaction without disclosure, or the agent aiding a principal’s competitors.

    An agent is under a duty to obey all lawful instructions given by the principal.

  13. kevwe says:

    The categorization of Agents in this article is quite exhaustive, being at liberty to discuss each and every category which an agent will fall under. Even as far as those Agents who are yet to be appointed by their principals but whose acts can still be ratified by the Principal if he is pleased with what he sees.
    The doctrine of Agency is from the foregoing very important in the current business day world. It’s a good work.

  14. Uboho Eyo says:

    Nice one Adaora. @Akan,incidental authority which is one of the types of implied authority extends to those acts which are necessary for the effective execution of those express authority in a usual way. For example, an agent authorised to sell a car and is entrusted with the possession has implied authority to take potential buyers for his test drive. With this, you will agree with me that the agent will have to buy fuel to enable him do so even without being told by the principal. Necessity on the other hand which is one of the types of presumed authority has to do with emergency situations, i.e., it just came up and the agent is urged to take an impromptu decision before getting to the principal. For example, the agent was to deliver perishable goods to a third party from Benin to Lagos due to hold up or go slow on the way, the agent tried to call the principal but network was bad, the agent may sell the goods so that they don’t go bad, because if that happens, the principal would bear the liability.

  15. Ndubuisi christian says:

    Nice work!

  16. Maimuna says:

    This article summarily is stating the importance of an Agent. It even eluidated on the agents whose acts could be subsequently ratified by his principal even when he’s not officially appointed. It is a wonderful piece. Brilliant article.

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