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Commercial Agency Contracts





Kingsley Ugochukwu Ani Esq.



In the business world, parties often enter into commercial agreements which they cannot handle on their own. To that effect, such parties contract with other parties to act as their agents for transactions between them and a third party.

Agency agreements are contracts which create a fiduciary relationship between the ‘principal’ and the ‘agent’. Here, the ‘principal’ agrees that the deeds of the ‘agent’, acting on his behalf with third parties, will bind him contractually as if it was the principal himself that had entered into such an agreement and not the agent.

In business, the role of commercial agents cannot be overemphasized. They are self-employed individuals/entities with authority to act as intermediaries to negotiate the sale or purchase of goods and services between the principal and a third contracting party. Commercial agency contracts exist to put the principal and the named intermediary into a mutually beneficial relationship where the principal relies on the knowledge and skill of the agent to finalize a deal. On the other hand, the agent works to handle the affairs of the principal with the knowledge that he will be paid if and when he succeeds in carrying out the instructions of the principal. He is usually paid based on the percentage agreed upon between him and the principal in their agreement.

In commercial transactions, agents act in a gamut of transactions, particularly those that require expertise in a particular area. Lawyers act as the agents of their clients in transactional settings, litigation, arbitration, etc depending on the contract between them and their clients. Escrow firms handle financial sales transactions between different entities, serving as agent to, not one, but all of the parties to the transaction.

Depending on the nature of the contract between the contracting agent and his principal, the agent might have universal power to act on all matters over which the principal has the legal authority to act on. Conversely, the powers granted might be specific. Such will specify the exact scope of the agent’s powers, particularly in mercantile transactions. In this situation, it is the role of the principal to specify exactly what the powers of the agent are so as to avoid liability for unauthorized acts of his intermediary claiming to act on his behalf. In determining what the scope of the agent’s authority, the principal should look into the specific circumstances of the transaction before giving away authority. In order to do this, some merchants seek the services of specialized law firms/lawyers to draw up a definitive agreement that will cover the relationship. Such a contract will specify the powers of the agent so that he doesn’t act outside the scope of his authority. This will save the principal from unnecessary liability in the future.

For such a contract to ensue, the intended agent should receive from the principal, a signed written document which sets out in detail, the terms of the contract, including any other term(s) subsequently agreed upon.

In spite of the above, such commercial agency contract will still be valid if oral. The need for writing is simple: it sets out the exact duties and obligations of both parties so as to eliminate doubt as to the nature and scope of their relationship. This may save them a lot of problems in future. The need for a written agreement is showcased when unwanted legal issues crop up in the relationship, not when things are running smoothly. For, in legal circles, contracts rule and parties are bound by the terms they expressly agreed to.