THE LAW OF AGENCY IN GHANA.
The principal-agency relationship is one of the fundamental pillars of modern commerce. Individuals and organizations (small and large) manage some of their activities through agency relations where the actions carried out by the agents on behalf of the individual or organization, become binding on the individual or organization.
Agency is a fiduciary relationship which exists between two persons when one, called the
Agent is considered in law to represent the other, called principal. The nature of this relationship is such that the agent is able to affect the principal’s legal positions in respect of strangers to the relationship by the making of contracts, including the disposition of property.
In simple terms, an agency relationship consists of the principal and the agent where the principal gives the agent legal permission to act on the principal’s behalf.
An example of agency relationship is a real estate agency relationship between the real estate agent and a land owner, where the land owner gives the agent legal permission to sell the land owner’s property to clients. Another example would be an agent for an artist in the music industry, where the agent is given the authority to enter into contracts and make important advertisement deals on behalf of the artist. Also, an agency relationship exists between a lawyer and his client.
The three main legislations governing commercial relations in Ghana are the “Contract Act of 1960 (Act 25)”, the “Companies Act of 2019(Act 992)” and the Sale of Goods Act of 1962 (Act 137). Apart from the Real Estate Agency Act,2020 which deals with agency relationship in the real estate industry, the laws in Ghana relating to commerce do not provide for a specific discipline of the agency institution. Nonetheless, case law and the general principles on the subject at common law, provide a guide for a better understanding of the agency relationship. For example, in the case of the State v Asantehene’s Divisional Court Exparte Kusade [1963] GLR 238, Korsah CJ (as he then was) explained the agency relationship as follows:
“where one has so acted as from his conduct to lead another to believe that he has appointed someone to act as his agent, and knows that other person is about to act on that other person’s behalf, then unless he interposes, he will, in general be estopped from disputing the agency, though in fact no agency really existed.”
Certain characteristics run through the various definitions. These are;
- Agency may come into being through a contract which may be express, implied or presumed by law,
- An agent acts with the principal’s authority,
- The agent must consent to acting on behalf of the principal,
- Agent affects the principal’s legal relationship with a third party.
THE AUTHORITY OF THE AGENT
The agent is a person who has power to act on behalf of another person, the principal, and to affect the principal’s legal position. The relationship between the Principal and a third Party depends on the scope of the Agent’s power. The agency relationship between the Principal and the Agent is based on consent between the Principal and the Agent. The Principal is bound to the Third Party by acts which he has authorized or appears to have authorized the Agent to do. Between the Agent and the Third Party, the Agent may incur personal liability if he claims authority he doesn’t have. The law recognizes the Agent as having power to bind the Principal in four situations:
- Where the Principal gives prior consent to the Agent’s action, the Agent has actual authority.
- Where the Agent acts without prior authority of the Principal, but the Principal gives retrospective consent by ratification
- Where the Agent acts without the consent of the principal, but the law deems the principal to have consented –Agent of necessity
- Where the Agent acts without the Principal’s consent but the Principal is estopped from denying the Agent’s authority: the Agent is said to have apparent authority.
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Let’s now discuss the types of authority or permission an agent may be given in an agency agreement or relationship.
- Actual Authority: where the Principal gives his prior consent to the actions of the Agent. Actual authority is therefore based on the agreement between the principal and the Agent. Actual authority need not be in writing. All that is needed is consent which does not necessarily need to be reduced into writing. In a commercial context, such an agreement may be reduced into a formal contract between the principal and the agent. In this case, the Agent is entitled to be paid for his services and would be liable for breach of contract if he fails to perform his contractual duties. There is nothing against the Agent acting for free; all that is required is an agreement between the Principal and the Agent. As a general rule, there is no need for formalities in the appointment of an agent. The agreement between the Principal and the Agent can be express or implied. Actual authority may be express actual authority or implied actual authority.
- Apparent Authority: The Principal may be bound by acts done by the Agent without the Principal’s consent or even in breach of the Principal’s express prohibition if his words or actions give the impression that he had authorized the acts done by the Agent. Apparent authority is therefore the authority which a person appears to have to act on another’s behalf.
The position of the law on actual and apparent authority was explained by Diplock J in Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd as follows:
“an actual authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. To this agreement the Third party is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract pursuant to the actual authority it does create contractual rights and liabilities between the principal and third party. An apparent authority on the other hand, is a legal relationship between the principal and the third party created by a representation made by the principal to the third party, intended to be in fact acted on by the third party, that the agent has authority …To the relationship so created the agent is a stranger.”
- Agency of Necessity: A person who acts in an emergency to preserve the property or interest of another may be treated as an agent of necessity. As in cases of apparent authority, an agency of necessity can arise even where there was no existing relationship between Principal and Agent. In this situation, the actions of the agent will be deemed to be authorized even though no actual authority was given. Like cases of apparent authority, agency of necessity can arise in spite of the fact that there is lack of authority from the Principal. Unlike cases of apparent authority, agency of necessity can give the Agent rights against Principal where there is already an existing agency relationship between Principal and Agent, an agency of necessity may also be explained on the basis of implied authority.
DUTIES OF THE AGENT
Duty to carry out his responsibility; Obey; Duty of Care and Skill; Duty not to make a covert profit; Duty to Account; and Duty not to delegate his assignment. The agent also has a duty to avoid conflicts of interest.
DUTY OF THE PRINCIPAL
Subject to the terms of the agreement, the principal must pay the agent for the Agent’s services. An agreed-upon amount or a commission may be due to the agent. In the absence of such an arrangement, the compensation will be determined by the situation.
REMEDIES AVAILABLE TO THE PRINCIPAL AND AGENT WHEN THE CONTRACT OF AGENCY IS BREACHED
Agent’s Remedy
Action: Where the agent has finished his work and the principal has refused to pay the remuneration, the agent shall bring an action to recover the money.
Set Off: Where the principal brings an action against the agent for breach of duty and recovery of any amount due him, the agent may reply by setting off against such claim any amount due him Where the principal has not discharged any of his duties by way of remuneration or indemnity, the agent may exercise the right of lien (detention) over goods belonging to the principal which is in the Agent’s possession. He may keep them till the principal has satisfied any claims of the Agent.
Principal’s Remedy
Dismissal: The principal has the right to dismiss the agent when he misconducts himself in the performance of his duties. Some acts that might call for dismissal are fraud, negligence, deceit and among others. Prosecutions Where the Agent’s misconduct takes the form of a criminal offence, the principal beside his remedy in damages can also bring the appropriate criminal proceedings against the agent to seek redress.
OTHER REMEDIES
Termination:
By the act of the parties; Since the principal and the agent agreed to create the agency relationship, either of them may also withdraw from the said agreement. This is done by giving notices. The agent may do this by giving a notice of renunciation or the principal giving a notice to the Agent. Third parties must also be notified not to deal with the agent as the agent will no longer have authority to act on the principal’s behalf.
Death, insanity or bankruptcy; The death, insanity or bankruptcy of either the principal or the agent may also terminate the relationship. Where the principal is also a company, winding up or dissolution will also terminate the agency. See Gordon V. Essien [1992] 1 G.L.R. 232
Frustration:
When the property which is the subject matter of the agency is destroyed or in any way ceases to exist, the agency will come to an end.
Closure of business; When the principal has ceased to carry on the business in respect of which the agent was employed.
Execution; If the agent was appointed for a fixed term or to carry out a particular work, the execution of that work or the given time being due terminates the relationship between the parties.
Conclusion
From the above, it is in the interest of both parties i.e, the agent and principal to clearly and expressly spell out the terms of their agency agreement. This should include terms on whether it is an exclusive or nonexclusive agency; the duration of the agency, limitations of the agent’s authority, renumeration of the agent, that the agents’ acts bind the principal so long as they are in good faith, that the agency agreement constitutes the entire agreement between the parties and that no oral agreement can change the agreement and lastly how to terminate the agency
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