Commercial Transactions- Law of Agency (2)

TYPES OF AGENT

An agent may be appointed to act in a specific transaction outside his ordinary course of business

SPECIAL AGENT
 An agent may be appointed to act in transactions of a designated class or generally, so as to be
within the ordinary course of his business-

A GENERAL AGENT
 It was at one time common to distinguish between special(ad hoc) and general agents, though
the utility of this distinction has been doubted , it has been applied by the House of Lords for the
purpose of determining the normal ambit of the doctrine of apparent authority

ROLE OF AGENTS

FACTORS
 A Factor is a person in possession of goods belonging to his principal to be sold for the benefit of
the P.

 It is customary for factors to sell goods in his own name without disclosing the identity of the P.
However if he does disclose the name of the P, that fact alone does not mean that he would
cease to be a Factor.

 A Factor who in the customary course of his business has authority to sell goods, or to consign
goods for sale, or to buy goods or to raise money on the security of goods, is termed a
mercantile agent.

 Where a mercantile agent, with the consent of the P, is in possession of goods or documents of
title to the goods, any sale or other disposition transacted by him in the ordinary course of
business in respect of those goods is as valid as if they were expressly authorized by the
principal, provided that the third party did not know of the agent’s lack of authority

BROKERS

 A broker negotiates on behalf of buyers and sellers. He is however, not in possession of the
goods. His business is to introduce customers to sellers and vice versa. He manages the signing
of the contract between the two parties but does not actually sell in his own name.

COMMISSION AGENT

 A commission agent or merchant enters into contracts with third parties in his own name,
although he does so as an agent. He is therefore privy to the contract with third party and so far
as the third party is concerned, recourse may be had to the commission agent.
DEL CERDERE AGENT

 The del credere agent takes on additional risks. He is prepared, upon the payment of a
satisfactory commission, to indemnify the principal if the transaction falls through and the
principle suffers loss as result.

 The terms of a del cerdere agency are such that the agent only agrees to indemnify the principal
in the event of the buyer not taking delivery of the goods or becoming insolvent and unable to
settle the purchase price.

 The del credere remains an agent throughout , and he is therefore not to be held liable for the
non performance of the contract by his principal.

 There are no formal requirements for the formation or creation of a del credere agency. Its
existence can be implied from the parties conduct.

 The del credere’s primary appeal is in the comfort for principal’s that the transaction will be
performed. That attraction is now covered, in the case of international sales, by modern
mechanisms, including documentary credit system etc

CONSIGNMENT:

 The enterprise delivers goods to the consignee to hold in the first instance as the bailee, but on
terms that the consignee is to buy the goods if he notifies his of intention to do so, and he is
deemed to have elected to buy them if he fails to return the goods within a given time or
otherwise adopts the prospective purchase transaction, typically by selling the goods.

DISTRIBUTORSHIP

 An agent can be appointed to buy goods and resell them in his own account.

 A business may use a single distributor or a complex network of distributors to market its good.

 A supplier may favour a distribution agreement where it is trying to break into a new market,
hence taking advantage of the distributor’s local knowledge; or the nature of the products
require little or no direct contact with the end user or customer.

 In contrast, to agency relations, strictly speaking, the distributor is an independent party who
bears risks in all transactions to third parties subject to supplier’s liability for defective goods.
Distribution agreements fall into a number of categories:

Sole distribution agreement

 Where the supplier undertakes not to appoint another distributor for his goods in the
territory, but is free to sell his goods directly to the customers in competition with the
distributor.
  A supplier who wishes to develop or protect his corporate image may choose sole agreement.
Such agreement may also be suitable where the nature of the goods require an enhanced
level of service or advice at the point of sale to customers, or where the supplier will be
required to provide after sale support.

Exclusive distribution agreement

 Which gives the distributor the exclusive rights to sell the product in a specified territory

Selective distribution agreement

 Where supplier appoints a certain number of distributors to promote his goods in a territory
based on certain qualitative criteria, which effectively limit the number of distributors that
can be appointed.

 A selective distribution agreement may not encourage as much intra-brand competition as

exclusive agreements, and so are more likely to raise questions of anti competition such
concerns may be off set where goods are cheaper to the customer due to a reduction in
logistical costs brought about by a selective agreement

Non-exclusive distribution agreement

 The distributor agrees to take the suppliers goods but in knowledge that he will be competing
with other distributors and the supplier. The terms of such agreement distributor than
exclusive or sole distribution agreements

Why adopt the above approaches to marketing?

Many factors are taken into account by the enterprise :

 Cost

 commercial convenience

 legal considerations, such as the desire to ensure or avoid contractual relations with buyers;

 for tax and accounting implications involved in choosing one method instead of the other

 the enterprise may take the view that it does not want to maintain a large number of staff on its
payroll
  its selling may be more effective if conducted through others

Relationship between principal and agent

Capacity in which agent acts

 This can be deduced through; agreement of the parties, settled as a presumption of law, or as
a matter of business usage

Duties of agent to principal

 The performance of the duties imposed on him by the express or implied terms of the agency
agreement and; A must perform with reasonable care and skill the duties allotted to him by
the agreement, must observe any lawful and reasonable instructions given by so far as they
are consistent with the terms of the agreement, and must act strictly within the limits of his
actual authority

 A’s contractual obligations only form only part of the total. The law usually though not
invariably treats A as a fiduciary and thus requires him to fulfil a further range of duties which
equity imposes on fiduciaries. The extent to which these apply and the strength of their
application vary according to the nature and circumstances of the agency agreement. They
will normally include:

o duty to act towards P loyally and in good faith

o To keep and be prepared to render accounts of his dealings on behalf of P

o To subordinate his own interests to those of P

o To avoid conflicts of interest between P and other P

o To refrain from using his position as agent to acquire for himself property, contracts
or business opportunities, or other benefits which he ought to do so for P

o A must keep money and other assets received from or for P separate from his own
and be a trustee of any proceeds of sale of P’s property

Remedies for principal

 The remedies available for breach of contract, including damages

  Remedies for breach of fiduciary duties vary according to circumstances. They include:

o personal remedies such as an account and payment of monies received for P

o Compensation by way of equitable debt for loss caused to P

o Confiscation of a bribe or secret commission received by A

o Remedies for enforcement of proprietary rights, such as a constructive trust of

money or other assets received by A for himself which he should receive for P

o Proceeds of P’s property which A has misappropriated

Duties of Principal to Agent

 May depend on the express or implied terms of the contract

 Whether an agent is entitled to remuneration will depend on the express or implied terms of
the agency agreement. Agents used in trade and commerce will almost invariably be entitled to
remuneration usually in the form of commission. Remuneration may be as agreed, and where
not specified, reference may be made to customary remuneration for similar work in that trade

 If there is no customary practice, a reasonable sum taking into account all aspects of the
transaction

 Agent has a right to be reimbursed his agreed or reasonable expenses, except so far as intended
to be covered by his remuneration.

 He has right to be indemnified against all liabilities incurred but only in the performance of his
duties

Agents remedies

 Remedies for breach of duty which may be personal or proprietary.

 A has a personal right of action for unpaid remuneration and expenses.

 He has a lien over any property of P in his possession to secure payment of what is owed to
him.

 A has a right of recoupment by debit of P’s account, where A has incurred liability at P’s
request and commitment , to make a payment to a third party.

 Right of set-off
 Position of Third Party

Agency disclosed

 Where A contracts expressly as agent for P as a named or identifiable principal, T’s contract is
with P, not with A, and only P can sue and be sued on the contract.

 This is so even where A exceeds his authority, though in such a case he becomes liable to T for
damages for breach of implied warranty of authority

 In the case of signed contracts in writing there is an established rule that where A signs in his
own name, he is personally liable unless it is clear from the documents that he was signing in his
capacity as an agent

Agency undisclosed

 Where A makes a contract as apparent principal, so that T is not aware that he is an agent, the
parties to the contract are T and A.

 But if T discovers he, may elect to sue P instead of A, while P on his part may intervene to
enforce the contract made on his behalf. However the this does not apply where the terms of
the contract expressly or impliedly exclude P’s right to sue and liability to be sued or where A
does not intend to act on P’s behalf

Termination of agency relationship

 P has power to terminate agent’s authority by agreement or by P’s unilateral act in giving notice
of revocation of the authority.

 Agency may also come to an end by the operation of the law in various circumstances such as
P’s bankruptcy.

 P can terminate A authority in whole or in part.

 However in agency coupled with an interest, agency cannot be terminated before the A is able
to recoup his expenses or liabilities incurred on behalf of P